So the bluff has been called.
In what will go down in modern Middle Eastern history as either the greatest hand played amidst a political and economic super-class of opponents, or the most disastrous, Dubai has shocked the international investing community by deciding (officially they “asked” but when there is no other choice it’s not really a question is it?) to postpone the debt re-financing and re-payments at Dubai World, the owner of Nakheel which had a $4bn bond coming due on December 14th. The immediate fall-out has been predictably ugly – CDS spreads for Dubai rose 36%, DP World +50% and the regional fall-out was hard as well, with Saudi CDSs rising 21% and even Abu Dhabi risk doubling straight after the announcement from 90bps to 180bps.
Doubtless there will be plenty of mud slinging amidst equal amounts of pontification taking place in the next few days, exacerbated by the ample opportunity for discussions due to the Eid holidays. A most cynical (or cunningly planned) timing of announcement – many local brokers, fund managers and investors were either already on holiday or literally walking out of the office when the unexpected announcement flashed across the Bloomberg screens. The lack of direction and explanation available to the international community even as the mushroom cloud was still rising following the explosive statement must have been remarkably infuriating for those that had begun to believe the dulcet tones of Dubai’s authorities in the last few weeks.
Rather than even beginning to attempt to explain what might be going through the heads of the politically motivated leaders and decision-makers throughout the region, a more useful exercise would be to immediately jump to what the long-term conclusions will be: one possible outcome is a total breakdown in relations between the region and the international financial community, resulting in a major set-back for the region’s attempts to develop their way towards sustainable growth and economic development over the next 10 years. With nerves already frayed by a soul-destroying temporary failure of capitalism in the most transparent of markets (US), patience and forgiveness is not an easily stumbled upon commodity by those controlling and unfortunately losing the money.
The other conclusion you might argue: this is a fantastically good event for the region. Not only do we rid ourselves of any misunderstandings now between Abu Dhabi and Dubai, but also between Dubai and the entire GCC. This is the band-aid being ripped off the wound in one sharply painful moment that honestly should have been done over 12 months ago. The drip-drip of assistance to Dubai has actually been detrimental to its overall economic health – akin to keeping a terminally ill patient alive by constantly reviving them with the smallest amount of intervention possible, enough to get a faint pulse on the screen.
Allowing a flatline, no matter how brief, may kick-start a more organic and lastingly powerful recovery. The new regime put in place across Dubai in the last week will use the Eid holidays as a breakwater, distancing themselves from the previous managements’ efforts at rehabilitation that have now been blown-out-of-the-water and exposed as nothing but empty rhetoric, seeking a fresh, long-term and confidence-inspiring solution.
One thing is certain I believe - Dubai will survive.
I wrote (original article below) attempting to explain in the most subtle way possible the complexities of what was taking place in the last few weeks, even as Dubai was doing its best to project an image of stability and absolute closeness to its neighbouring cities. The ruler of Dubai even asked those that doubted the viability of Dubai and its links with Abu Dhabi in particular to “shut-up”.
Well, I’m afraid you won’t be able to keep-shut the mouths of the shell-shocked international investment community any longer Sheikh.
Eid Mubarak to you all!
Rgds,
Hani
________________________________________
From: Kobrossi, Hani [ICG-MKTS]
Sent: Monday, November 09, 2009 2:10 PM
Subject: ** Poker Faced ** Monday 9th November
** Poker Faced ** Monday 9th November
Mid-East (only for fun) Gamble…
Lady-luck is a strikingly important figure in the game of poker – a favourite pastime of business-leaders, investment-banking-titans and even those that apparently never gamble but “just play for money with friends”. Anyone that has positioned themselves at a coveted seat of a major-stakes poker game and taken the time and pleasure in attempting to work on a special strategy or other motive towards making money will have no doubt realised, after a certain agonizing stint, that they are not indeed the major player originally anticipated and in fact the all-important sucker at the table – there’s always one. Spent longer than 15 minutes and still looking around trying to get a “feel” for the table? Well, too late buddy – everyone’s well on their way of feeling their way right up your trouser pocket to your wad of cash.
A game of poker is being played throughout the Middle East right now. Indeed, the first hand of the game was dealt about a year ago, as certain GCC states began to understand the disastrous consequences of an insatiable appetite for cheap money backfiring spectacularly as it disappeared as quickly as it had been gleefully handed out. There is a great deal of exquisitely positioned bluffing taking place between local and international entities, governments and powerful multi-nationals, governments and other (neighbouring) governments – culminating in an intriguing release of sound-bites often contradicting one another but nonetheless providing ample material for investors and pundits alike.
Bluffing, a most human of human evolutionary traits is an essential aspect of this clever game of poker. Wheeling and dealing with the others is a strategic and calculated play on seeking to profit from what you might be holding in your hands combined with an analysis of the facial ticks and expressions of your opponents. Very much like dealing/negotiating with your “opponents” sat across the re-financing discussion table.
The most alluring aspect of the game of poker? That would be the fact that there are no partnerships or collaborations, it really is a game of every-man-for-himself. The stakes are very high, but is there an ace hiding up someone’s sleeve?
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