Identifier
Created
Classification
Origin
09DUBAI545
2009-12-23 06:35:00
CONFIDENTIAL
Consulate Dubai
Cable title:  

Dubai Debt Crisis: Treasury Acting A/S Baukol's Meetings

Tags:  EFIN PREL PGOV AE 
pdf how-to read a cable
VZCZCXYZ0001
OO RUEHWEB

DE RUEHDE #0545/01 0310934
ZNY CCCCC ZZH
O R 230635Z DEC 09 ZDS
FM AMCONSUL DUBAI
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 0009
INFO RUEHDE/AMCONSUL DUBAI
C O N F I D E N T I A L DUBAI 000545 

C O R R E C T E D C O P Y - ADD CAPTION - CHANGE PARA NUMBERS

SIPDIS
STATE FOR NEA, E, EB AND SRAP

E.O. 12958: DECL: 2019/12/23
TAGS: EFIN PREL PGOV AE
SUBJECT: Dubai Debt Crisis: Treasury Acting A/S Baukol's Meetings
with Dubai and UAE Federal Officials

CLASSIFIED BY: Justin Siberell, Consul General, Dept of State, Exec;
REASON: 1.4(B),(D)

C O N F I D E N T I A L DUBAI 000545

C O R R E C T E D C O P Y - ADD CAPTION - CHANGE PARA NUMBERS

SIPDIS
STATE FOR NEA, E, EB AND SRAP

E.O. 12958: DECL: 2019/12/23
TAGS: EFIN PREL PGOV AE
SUBJECT: Dubai Debt Crisis: Treasury Acting A/S Baukol's Meetings
with Dubai and UAE Federal Officials

CLASSIFIED BY: Justin Siberell, Consul General, Dept of State, Exec;
REASON: 1.4(B),(D)


1. (C) Summary: Dubai and UAE Federal officials sought to reassure
Treasury Acting Assistant Secretary Andrew Baukol that the Dubai debt
crisis was on the road to resolution, with effective measures being
developed through legislation to ensure such over-borrowing would not
occur in the future, neither in Dubai nor any of the other Emirates
in the seven-Emirate UAE federation. Officials acknowledged berrorsb
in coordination, timing and ultimately judgment in Dubai Worldbs
November 25 standstill announcement, and indicated that hard lessons
had been learned on the need for greater transparency and expertise
in navigating the world of global finance. Dubai will breturn to its
rootsb of merchant activity, tourism, port and banking services as it
emerges from the crisis and seeks to rebuild its reputation,
officials predicted. Dubaibs appointed Chief Restructuring Officer
said that Abu Dhabibs December 15 $10 billion infusion would see
troubled Dubai World through the coming six months only. He would
not predict whether additional bail out funds from Abu Dhabi would be
needed following Dubai Worldbs restructuring effort. End Summary.



2. (C) Treasury Department Acting Assistant Secretary for
International Affairs Andrew Baukol visited Dubai for meetings on the
financial crisis December 16. He met with UAE Federal Minister of
Finance Obaid al Tayer; Dubai Department of Finance Director General
Abdel Rahim al Saleh; Investment Corportation of Dubai Managing
Director Abdulaziz al Muhairi; Dubai Support Fund Director Marwan
Abedin; and Dubai Chief External Restructuring Officer Aiden Birkett.
AA/S Baukol was accompanied by Treasury Office Director for Middle
East/North Africa Francisco Parodi and UAE Treasury Attache Matthew
Epstein. Consul General and Dubai Econoff attended the meetings.

--------------
Hard Lessons
--------------


3. (C) UAE Federal Minister of Finance Obaid Al Tayer told AA/S
Baukol that despite the worldwide uproar surrounding Dubaibs debt

crisis, the UAE economy remained fundamentally strong. bWe are
fine,b he said. Overall, the UAEbs response to the global economic
downturn had been sound, he asserted. The government had played an
effective role in shoring up the economy, in particular through
Central Bank support for the UAE banking system. The Nakheel sukuk
episode was an exception, not the rule. That said, he acknowledged
berrorsb in Dubaibs handling of the Nakheel standstill announcement.
Poor timing, combined with a lack of coordination preceded the
November 25 announcement. Officials were not prepared for the media
storm that ensued, with many already on holiday (Eid al Adha, then
UAE National Day),and therefore unable to develop or deliver an
effective response. Things are getting better, he said, with only
eight days passing between the UAEbs December 6 breturn to workb and
the December 14 announcement of the $10 billion cash injection from
Abu Dhabi.


4. (C) Dubai and the UAE had learned some bhard lessonsb from these
events. One was the need for greater transparency (the importance of
which was emphasized up front by AA/S Baukol). Required now are
sound decisions, including a commitment to deal equally with all
creditors, whether short-term bond holders or long-term holders of
bank debt, he said. Accurate and timely release of information, and
not just bpublic relationsb were critical to restore Dubaibs
credibility with financial markets. (Note: Al Tayer appeared to be
cautioning against papering over Dubaibs problems with high-priced
public relations tactics. Dubai has recently retained the Brunswick
Group to guide its public relations response to the crisis. The
comprehensiveness of the December 14 statement is seen as partly a
reflection of this outside PR talent. End Note.) The UAE is already
unique in the GCC in terms of openness, tolerance and the promotion
of trade and economic development, Al Tayer said. Coming through
this experience bwill make us all a lot wiser and the country much,
much strongerb, he declared.

-------------- --------------
A Strengthened Federation and bBack to Basicsb in Dubai
-------------- --------------


5. (C) Crucially, Al Tayer saw upside to the crisis in a
strengthening of the federal role in directing and coordinating
future economic development decisions. In the immediate term, this
would be seen through the effort to establish an effective national
public debt policy. A law to guide the effort is already in draft
before the UAEbs legislative body, the Federal National Council. Al
Tayer said the government intends to strengthen the draft lawbs
provisions to require each Emirate to appoint a bpublic debt officerb
whose responsibility is to monitor debt levels for government and
semi-government entities and report those levels to a Federal
Government coordinating body. Limits will be established vis-C -vis
debt as a percentage of Emirate GDP. The crisis also demonstrates


the bstrength of the Dubai-Abu Dhabi relationship,b Al Tayer
insisted, and dismissed extensive foreign media reporting on rifts
between the two as ill-informed.


6. (C) When asked what impact the debt crisis might have on the
economic model pursued in Dubai over the past several years, Al Tayer
responded: bI find it unfortunate that anyone might consider what
happened here over the past years part of a model.b Dubaibs true
economic model was its history of promoting trade, banking and port
services. That bmodelb remained fundamentally sound, he said.
Dubai must get bback to basicsb in order to revive its economic
fortunes moving forward. This idea was echoed by ICDbs Al Muhairi
who added tourism to the mix identified by Al Tayer. Whatever else
had happened, Dubai remained the business, trade and travel hub for a
region of 1.5 billion people and would need to retreat to bcore
competenciesb to maintain that position. Real Estate development, at
the root of Nakheelbs (and therefore Dubaibs) problems, would take a
back seat for many years to come.

--------------
Equity in Dealing with Creditors
--------------


7. (C) AA/S Baukol emphasized in his meetings the importance of
equal dealings with Dubaibs creditors. Al Tayer and the Dubai
officials acknowledged the importance of that principle, though would
not predict an outcome to the ongoing restructuring of Dubai World or
other Dubai GRE debt. Importantly, DSFbs Abedin said that the issue
of overdue payments to contractors (some of whom are U.S. companies)
would be a part of the governmentbs response to the crisis in
addition to settling debts with creditors. Consul General thanked
the Dubai officials for acknowledging the importance of paying
contractors, and reiterated the difficultly many U.S. firms have
faced in getting through this extended period of non-payment for
services rendered, mostly in the construction sector.


8. (C) Dubai Finance Departmentbs Al Saleh said it was premature to
suggest whether Dubaibs discussions with creditors would lead to
restructurings (e.g., bhaircutsb on payback amounts) or refinancing
(extended repayment terms),since auditors and consultants were only
now digging into the details of the overall debt picture. Al Tayer
said that Abu Dhabibs December 14 injection of an additional $10
billion support would buy Dubai time to breally investigateb the
extent of the problem and develop an effective strategy to work
through it. bWe need to plan, and that takes getting into the
numbers,b he said. Since there had been no system in Dubai to
monitor overall debt levels or to evaluate performing versus
non-performing GRE units, a solution could not be credibly developed
until a comprehensive analysis was completed.

--------------
Message from the Chief Restructuring Officer
--------------


9. (C) AA/S Baukol also met with Aiden Birkett, a Deloitte
executive appointed in October as Dubai Worldbs bChief Restructuring
Officer.b Since his appointment, Birkett has maintained an extremely
low profile, avoiding public exposure. He told AA/S Baukol that
peering into Dubai Worldbs books was like bdrinking from a fire
hose.b Dubai World had little to no internal auditing or
restructuring expertise to support the Deloitte outsiders in their
effort. The single most important accomplishment to date for his
team was to get Dubai Worldbs cash flow under control, Birkett
claimed. Birkett recognized that not all banks would be equally
cooperative with Dubai Worldbs restructuring effort, but believed
that most will ultimately agree with the terms set out. He added
that UAE-based banks in particular were massively relieved by Abu
Dhabibs USD 10 billion bailout.


10. (C) With respect to the USD 10 billion cash infusion from Abu
Dhabi, Birkett claimed not to know whether there would be additional
amounts provided, but said it was he who had requested the funds from
the Government of Dubai. His restructuring team had also proposed
the 6-month time frame for the Dubai World standstill and informed
the Dubai government what they would need to see the restructuring
effort through April. He did not reveal if the USD 10 billion was in
fact the full amount his team requested. Birkett said that other
Dubai GREs may need restructuring, but none would compare to Dubai
World. Birkett also said that it was critical that the Government of
Dubai pay off Nakheelbs sukuk because not doing so would likely have
precipitated an insolvency at Nakheel and would have made the
restructuring effort even more complicated. However, he said it may
not have been the right time to pay off Nakheel bond holders,
especially at par. Birkett claimed that after Dubai Worldbs
restructuring is complete, many stakeholders and creditors will have
taken sizeable haircuts in what is owed to them.


--------------
Comment
--------------


11. (C) After a short but punishing period where Dubai and UAE
officials were unable or unwilling to meet the information demands of
the international community and media, government officials are now
eager to get their story of reassurance out. There is no bbunkeringb
going on here, as seen in the willingness of government officials to
meet and discuss the crisis. A belief persists that Dubai received
unfair treatment in the press (indeed each of AA/S Baukolbs meetings
with government officials included an extended rant on the subject),
but officials also appear to be taking in the need for transparency
and timeliness in addressing the crisis moving forward. End Comment.



12. (U) This cable was cleared by AA/S Baukolbs staff.
SIBERELL