U.S. Companies Seek Overdue Payment in Dubai

UNCLAS DUBAI 000034 SENSITIVE SIPDIS DEPARTMENT FOR NEA/ARP, MCGOVERN COMMERCE FOR ITA/MAC, LOUSTAUNAU AND SAMS E.O. 12958: N/A TAGS: EFIN ETRD ECON PGOV AE SUBJECT: U.S. Companies Seek Overdue Payment in Dubai REF: 09 Dubai 457; 09 Dubai 533; 09 Dubai 545 ¶1. (SBU) Summary: Following months of advocacy by the Consul General and FCS, some Dubai government-linked companies have begun initial steps to address outstanding payments owed to U.S. companies that provided services and delivered on projects during Dubai's property boom. Dubai Holding, a conglomerate of real estate development companies funded with seed money from the personal wealth of Dubai Ruler Mohamed bin Rashid al Maktoum, is appointing negotiators to engage U.S. companies owed an estimated 40 million dollars for services rendered. This effort is in line with recent comments by senior Dubai officials committing to include payments to contractors as the Emirate addresses its ongoing debt and financial crisis. These developments are welcome and will have a positive impact on the U.S. business community here, but are not comprehensive. A number of other Dubai linked entities that owe money to contractors have yet to match the steps taken by Dubai Holding. End Summary. ¶2. (SBU) Dubai is a regional hub for hundreds of U.S. companies, viewed as a conducive point from which to exploit lucrative markets of the GCC and further afield. When the Emirate went on a debt-fuelled building boom beginning in 2004, a number of U.S. companies in the architecture, construction and engineering sectors played a role and enjoyed hugely lucrative opportunities. But when Dubai's real estate sector crashed in late 2008, many of these same U.S. companies were left hanging, facing effectively bankrupt developers unable to pay for services rendered. This issue has emerged as a principal challenge facing the U.S. business community in Dubai and a top commercial priority for Consulate General Dubai (ref a). Dubai FCS has collected voluntary data on outstanding payments from a number of U.S. companies impacted and has used that data to press senior Dubai leadership for timely payment. At the request of the companies themselves, and in keeping with local custom, discretion and confidentiality have marked these discussions. U.S. companies are not alone in facing payment difficulties; post's strategy has been to position U.S. companies to benefit first once repayment begins. -------------- -------------- -------------- Dubai Leaders Acknowledge Pending Contractor Payments -------------- -------------- -------------- ¶3. (SBU) In a December 14 statement announcing the Emirate of Dubai's receipt of USD 10 billion in support from Abu Dhabi to address the debt obligations of government-linked company Dubai World (ref b),Shaykh Ahmad bin Saeed al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, said that the Government of Dubai would apply a portion of the Abu Dhabi funds "for the satisfaction of obligations to existing trade creditors and contractors." Shaykh Ahmad's statement added, "discussions with affected contractors will begin in short order." This language was viewed by unpaid companies as a sign that the Dubai government understood that obligations to unpaid contractors would be a key factor in the restoration of Dubai's business-friendly reputation. Later, in a December 16 meeting with Assistant Secretary of Treasury Baukol (ref c),Marwan Abedin, Chairman of the Dubai Support Fund, a unit established to provide government support to companies negatively impacted by the economic downturn, indicated that payments to contractors was a priority of the Government in its management of the debt crisis. The Dubai Government, he said, understood that it had obligations to contractors owed money by companies such as those within Dubai Holding, and would meet those obligations. -------------- -------------- - Dubai Holding Takes Steps to Address Unpaid Bills -------------- -------------- - ¶4. (SBU) In November and December 2009 meetings, Dubai Holding CEO Ahmad bin Byat discussed the issue of unpaid bills of U.S. contractors with the Consul General and FCS Officer, who provided a detailed breakdown of money owed by Dubai Holding to U.S. companies. The FCS-developed spreadsheet pertaining to Dubai Holding shows an estimated total of nearly USD 40 million in outstanding payment. (Note: The spreadsheet represents only the information impacted companies have voluntarily provided us; some companies have not responded to our requests, so the total may actually be higher than 40 million dollars. End Note.) Following these meetings, Bin Byat appointed Khalid Al Malik, Group CEO of Dubai Properties to look into the non-payment issue. In a follow-up meeting with FCS Officer on December 30, 2009, Al Malik provided a four stage matrix of 17 projects for which payments were owed to U.S. companies. Al Malik had labeled the projects as: Blue (agreed MOU with the U.S. firm); Green (Dubai Properties data collection complete); Yellow (assessment in process),and Orange (collecting data on invoices). Al Malik stated that his goal was to conclude settlements with all of the U.S. firms on the list by the end of the first quarter, 2010. Al Malik welcomed additional input from FCS regarding newly identified claims and tagged Arif Mubarak, COO of Dubai Properties Group, as the day-to-day POC. ¶5. (SBU) FCS followed-up with both companies listed as "blue" in the Dubai Properties matrix, indicating a signed MOU and agreed payment schedule to confirm accuracy of the information: architecture firm Burt Hill and engineering firm R.G. Vanderweil. Burt Hill confirmed the MOU and that it is receiving one million AED per month (USD 270,000) on a project payment settlement that began in late November 2009. The firm said that discounts were not required or requested on the agreed invoices, unlike the thirty percent discounts reportedly demanded of contractors by the indebted company Nakheel. Non-approved invoices, however, are to be negotiated case-by-case, and will likely require discounts and extended payment schedules. In its conversations with other impacted companies, Burt Hill told FCS Officer, it recommends companies agree to receipt of a reduced amount on non-approved invoices in order to quickly establish cash flow rather than holding out for full amounts, a tactic that could result in companies being dropped to the bottom of the repayment list. R. G. Vanderweil similarly confirmed an MOU in place with Dubai Holding and indicated payment will begin soon. FCS also confirmed that the two U.S. firms with the largest outstanding balances with Sama Dubai (another of the Dubai Holding property developers) have also been contacted in recent weeks to conduct further discussions on invoices. -------------- Repayment Not Universal -------------- ¶6. (SBU) The positive steps undertaken by Dubai Holding have not been matched by other Dubai controlled or linked entities. Dubai-based mega developers Nakheel, Emaar and Meraas each maintains a long list of unpaid contractors and have not undertaken the same kind of direct action seen recently from Dubai Holding. And the situation is even worse for unpaid contractors attempting to gain traction with truly private developers with no link to the government, such as Omniyat or Union Properties, two high flying companies now mired in debt problems. On the other hand, Dubai's Road and Transport Authority (RTA),notably reported to owe one U.S. engineering and construction firm over 200 million dollars in overdue contract payments, has recently begun to make back payments, albeit only a fraction of the owed amount, according to the company. RTA also recently announced a plan to spend up to 3 billion dollars in infrastructure-related stimulus in 2010 on roads and its metro transport system. ¶6. (SBU) Comment: The public acknowledgement by senior Dubai government officials of the need to meet obligations to contractors and the recent moves by Dubai Holding to undertake steps towards payment are positive signs. Consul General and FCS will remain engaged on this issue, working with impacted U.S. companies and leadership of government-linked property developers towards favorable outcomes. End Comment. SIBERELL