The restructuring of Dubai World: Will it effects India?

Mangalore Today

Dubai, Nov.27: The government of UAE has authorised the restructuring of Dubai World to be spearheaded by the Dubai Financial Support Fund (DFSF). The $59-billion debt woes of state-run Dubai World, one of the largest global conglomerates, has left thousands of Indian families worried, as the region accounts for half of the country’s $25-billion remittances.

 

Gulf countries employ five million Indians, out of the 25 million total strength of the Indian diaspora in 130 countries, and Dubai being a key driver of the region’s economy, a shakeout there is seen unsettling the job market -- and the incomes of relatives.
Former governor of the Reserve Bank of India (RBI) Y.V. Reddy also expressed concern over the prospect of Indians employed in the Gulf losing their jobs. "Much would depend on its impact on the real economy there and employment," he said. "It’s one thing if property prices or share prices come down. That will affect only one section of people. But how’s it going to affect the living conditions, employment, real economic activity in those countries where we are employed?" queried Reddy.

 

Analysts, nevertheless, maintained that while the future plans of Dubai World in India may be affected, the existing ones may not suffer much. These projects include:
-Full ownership of the container terminal in Chennai
-A joint venture with Bharat Hotels for five-star properties
-A venture with Tata Realty and Infrastructure for logistics parks
-Ownership of international container terminal near Kochi
-Interests in Kulpi port project near Kolkata
-Major stake in Mundra international container terminal near Kandla
And many other projects in partnership with India.

 

In Kochi, for example, the chairman of Cochin Port Trust, said the first phase of the $451-million International Container Transshipment Terminal of Dubai World subsidiary was "fast nearing completion" with no problem on funding.
"The construction began in 2007. Till today work has progressed well with no problems. According to our initial estimates, the budget for the first phase is around Rs.1,500 crore ($300 million), but it is likely to go up."
However, Indian policy-makers are not really worried over the potential adverse impact on the country’s economy because of the multi-billion-dollar debt default risk faced by Dubai World, ranked among the largest conglomerates in the region.
India’s realty majors Friday said the debt crisis of Dubai World, one of the largest global conglomerates, would not affect the domestic property sector but fund managers and real estate consultants disagreed.

 

According to Parry Singh, managing director of real estate equity fund Red Fort Capital: "The recent crisis will certainly impact the Indian realty sector which has not even fully recovered from the Lehman (Brothers) crisis."
He said the debt crisis many again drive banks to tighten their credit policy, a move that could jeopardise the credit flow into the realty sector.
According to engineering and construction major Larson and Toubro, the Dubai debt crisis is "worse" than the financial crisis that followed the collapse of Lehman Brothers in September 2008. "It is worse than the Lehman crisis, especially for the Indian realty sector, as the exposure is greater and the impact more local," said a senior official of L&T. The company has the exposure of about $20 billion in Dubai.
Sheikh Ahmed bin Saeed Al-Maktoum, chairman of the Supreme Fiscal Committee of the Dubai government, has said that the committee’s decision to intervene in Dubai World is well-thought and planned, WAM news agency reported. Al-Maktoum said: "Our intervention in Dubai World was carefully planned and reflects its specific financial position. The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react. We understand the concerns of the market and the creditors in particular. However, we have had to intervene because of the need to take decisive action to address its particular debt burden."