DUBAI RULER SHAKES UP SENIOR FINANCIAL MANAGEMENT

C O N F I D E N T I A L SECTION 01 OF 03 DUBAI 000505 SENSITIVE SIPDIS DEPARTMENT FOR NEA/FO; NEA/ARP/BMCGOVERN; TREASURY FOR NATASHA ZAMECNIK E.O. 12958: DECL: 11/23/2019 TAGS: ETRD KIPR EFIN ECON PREL AE SUBJECT: DUBAI RULER SHAKES UP SENIOR FINANCIAL MANAGEMENT REF: REFTEL: DUBAI 354 DUBAI 00000505 001.2 OF 003 CLASSIFIED BY: Justin Siberell, Consul General. REASON: 1.4 (b) ¶1. (C) SUMMARY: A shake-up in Dubai's financial services and investment nerve centers over the weekend has brought down four of the principal architects of Dubai's rapid, debt-fuelled economic expansion. Dubai Ruler Sheikh Mohammed bin Rashid al Maktoum (MbR) replaced Dr. Omar bin Suleiman as head of the Dubai International Financial Center (DIFC) with Ahmad Humaid al Tayer, Chief Executive Officer of Emirates NBD bank, and a member of one of Dubai's most prominent merchant families. MbR also reshuffled the board of the Investment Corporation of Dubai (ICD),removing three key board members and Dubai heavyweights: Mohammed Gergawi, Chairman of Dubai Holding and Minister of Cabinet Affairs; Mohammed Alabbar, Chairman of property giant Emaar; and Sultan bin Sulayem, Chairman of Dubai World, each of them U.S.-educated proponents of a globalized, integrated Dubai. These changes come just two weeks after MbR subordinated the new-guard dominated "Executive Office" to the Ruler's Court, Dubai's traditional, but until recently eclipsed, nexus of power. The moves represent a public "shaming" of some of Dubai's highest flyers and are intended primarily to reassure the investors upon whom Dubai must rely to secure continued financing on its reported $80-plus billion in debt. But they also signal the reemergence of Dubai's traditional merchant class through men like Al Tayer who, in his role at Emirates/NBD Bank had a poor record of responsiveness to U.S. policy objectives, particularly on the issue of Iran-related trade and financial sanctions. END SUMMARY. -------------- WEEKEND SHAKE UP -------------- ¶2. (C) Dubai awoke Friday, the beginning of the UAE weekend, to news that Ruler Shaykh Mohamed bin Rashid al Maktoum had restructured the Board of the Investment Corporation of Dubai (ICD),an investment vehicle that channels ruling family investments and borrowed funds into the myriad companies owned by the Dubai ruling family. The changes removed from the ICD Board three of the (U.S. educated) government executives most associated with Dubai's boom and bust cycle of the past decade: Mohamed al Gargawi, Sultan Ahmed bin Sulayim, and Mohamed Ali Alabbar. Each retains positions in the individual companies with which they were previously associated, but removal from the ICD Board in above-the-fold headline announcements constitutes public shaming of three of the highest-flying Dubai executives behind the city's dramatic rise of the past decade. The three were replaced by members of the Dubai ruling family. This news was followed on Saturday by news of the replacement of Dr. Omar bin Suleiman as Governor of the Dubai International Financial Center (DIFC),Dubai's showcase development intended to establish Dubai as a global financial services hub. ¶3. (C) Elan Fabbri (protect),Strategic Advisor to the Dubai Executive Office told polecon chief that the shake-ups were months in the making and "nothing personal." She claims that MbR in early Fall 2009 convened many of Dubai's high-fliers to remind them that they serve at his pleasure and could be dismissed at his pleasure, implying that major moves were in the offing. Fabbri argued that the removal of Gergawi, Alabbar, and Bin Sulayem from the ICD was "long overdue" as that entity has an oversight role in the companies each of them oversee and that reports any of the three had fallen out of the Ruler's favor were false. (Note: Fabbri was equally sanguine about her own office's recent subordination to the Dubai Ruler's Court, headed by Mohammed Al Shaibani. While she conceded that move was part of a consolidation of power by Dubai's more conservative old guard, which Shaibani represents, she argued that the day-to-day activities of the Executive Office, charged with strategic planning and decision-making in Dubai, would remain unchanged. End Note) ¶4. (C) Michael Zamorski, Managing Director of Dubai Financial Services Authority (DFSA),the regulatory arm of DIFC (strictly protect),told polecon chief, though, that MbR had been personally disappointed by the mismanagement of Dubai's finances by the men arguably closest to him. He also claimed that the ouster of Dr. Omar bin Suleiman was more clearly linked to performance, alleging that Suleiman had been caught with his "hand in the cookie jar." This reportedly came to light through DUBAI 00000505 002.2 OF 003 an audit of the DIFC which was to have been conducted in 2006, but was later brushed under the rug, and was only recently completed under explicit instructions by MbR himself. Allegations of corruption within the leadership of DIFC, a crown jewel of Dubai and a self-described island of transparency and openness in the region, are considered a serious threat to DIFC's longer-term viability and thus Dubai's hopes of emerging strong from the financial crisis. -------------- -- FIRINGS: A SIGN OF ACCOUNTABILITY TO ABU DHABI? -------------- -- ¶5. (C) The personnel changes at DIFC and ICD have fueled increased speculation regarding the role Abu Dhabi continues to play in Dubai's restructuring efforts. The four officials swept up in this latest round of management reshuffling once represented some of the most powerful and arguably influential figures in Dubai's economic miracle and are now its highest profile casualties. Although Gergawi, Bin Sulayem and Alabbar maintain their posts as CEOs in their respective companies, their futures at Dubai Holding, Dubai World and Emaar remain uncertain as Dubai Holding and Emaar continue to finalize merger proceedings (Reftel) and Dubai World continues to restructure. Dr. Omar's position as Deputy Chairman of the Central Bank has to also be considered in question. A senior VP at General Electric who had recent conversations with top Abu Dhabi officials told econoff before the shake-ups that personal accountability, along with increased transparency and equity stakes in Dubai Inc., would be at the top of Abu Dhabi's list of demands in exchange for continued assistance to see Dubai through the present financial crisis. ¶6. (C) Additionally, Zamorski suggested to polecon chief that public firing of these top officials could be the public shaming of reckless Dubai CEOs that has been long overdue in the eyes of frustrated investors. In fact, Zamorski explained that Abu Dhabi was especially outraged about how Dubai World managed the first tranche of the USD 10 billion underwritten by the UAE Central Bank. He alluded to rumors that Dubai authorities sanctioned significant bonuses to Nakheel leadership last spring from the USD 10 billion bailout, even as the developer continued to sink under significant debt obligations which it is still struggling to meet. A senior consultant to the Dubai government told Consul General that as dramatic as the changes were, they were only the beginning of a broader restructuring expected to play out over the coming three or four months. Expected to fall further, in particular, is Nakheel Chief Sultan bin Sulayim whose Dubai World holding company is alone estimated responsible for some $59 billion in debt. Among Dubai World's investments is the massive Las Vegas City Center project, reportedly the largest privately-funded real estate project in history that came close to bankruptcy in 2008. City Center's scheduled December opening may be the one thing saving bin Sulayim from a more dramatic public humiliation. -------------- - AHMAD AL TAYER AND THE RETURN OF THE OLD GUARD -------------- - ¶7. (C) With Dr. Omar's removal, Ahmed Humaid al-Tayer, Chairman of Emirates NBD bank, will take over as the new head of DIFC. Al-Tayer is a former Minister of State for Finance and Industry and Minister of Communication. He is a member of one of Dubai's most powerful and influential merchant families. Relatives hold positions as head of the Road and Transport Authority and the Dubai Water and Electricity Authority. His brother, Obaid al Tayer, is the current Minister of State for Financial Affairs. In remarks to the press, Al Tayer said he would pursue the same strategy as his predecessor at the DIFC. Kito De Boer, Manager of the Dubai office of McKinsey &Co., told Consul General that Al-Tayer is regarded as a "solid", if conservative banker of strong reputation, something many outside the DIFC (read: Abu Dhabi) will welcome. Ahmed Saeed, head of Cerberus Capital's Dubai office (and former Treasury DAS) told polecon chief that DUBAI 00000505 003.2 OF 003 he suspects the shift to the old guard and the return to prominence of the old merchant families, of which al Tayer is a member, may be accompanied by a new focus at DIFC away from the West and toward "Eastern" or Islamic banking institutions. One question that remains is whether Al Tayer's appointment is intended as a stop-gap measure or a longer-term posting to the DIFC flagship. Al Tayer's duties at Emirates/NBD, the region's largest bank, are considerable, particularly as the merger between the former Emirates Bank and National Bank of Dubai is only just being completed. -------------- COMMENT -------------- ¶8. (C) Although long expected, the Dubai Ruler's weekend shakeup has nonetheless excited local analysts into divining a true meaning for Dubai's future. The four men displaced are all of a young generation that rose along with Mohamed bin Rashid's own ascendance in the 1990's. They were chosen deliberately by him for their non-association with the old Dubai merchant class, and admired for their U.S. education and willingness to match MbR's ambitious thinking, something the merchant families could not be counted upon to do. But now that the bubble has burst, and Dubai has had to turn to Abu Dhabi and the merchant families earlier spurned, the new guard has been sacrificed. More changes are likely as Dubai continues to claw its way back to financial stability. Of particular interest will be how Ahmad Al Tayer manages DIFC. As CEO of Emirates/NBD, he has been less than fully-responsive to USG demarches to restrict the Bank's exposure to Iranian banks at the heart of Iran's nuclear procurement activity. END COMMENT SIBERELL