UK Business Secretary Peter Mandelson urged Dubai to reach an agreement to settle its debts, or risk its reputation with investors as details of a potential deal between creditors and troubled conglomerate Dubai World emerged.
“Time is running out,” Mandelson told delegates at a lunch hosted for British business in the emirate. “The current uncertainties and lack of agreement can’t go on for much longer. As we approach decisions, Dubai has to be as open as possible on talks with banks and construction companies.”
British companies are amongst the biggest international creditors to Dubai, with state-controlled Royal Bank of Scotland Group and Lloyds Banking Group exposed to Dubai World.
“Dubai has to be conscious of the fact that depending on how it resolves the current problems will mean a great deal for how it secures investment in the future. Dubai has to tread carefully, openly and not for too long. It has to reach an agreement that’s demonstrably fair,” Mandelson said.
British construction and engineering firms at one point last year were chasing about £400mn in unpaid fees from companies in the UAE, mostly in Dubai, UK trade body the Association for Consultancy and Engineering.
Mandelson’s comments, the strongest so far by a UK political figure regarding Dubai’s financial problems received a mixed reception from British business executives attending the lunch in the swank Emirates Towers hotel.
Earlier in the week, Dubai World and its creditors have hit an obstacle in negotiations over a proposed standstill on the conglomerate’s debt.
Analysis and Forecast: Increasing Risk
The call by Lord Mandelson puts even more pressure on Dubai. The remarks undermine the credibility of statements given by Dubai government and Dubai World authorities that the situation is under control. Lord Mandelson has taken a very unusual step of making such remarks and his statements will be seen as the most accurate representation of the situation, as they come after talks he had with Dubai officials. The threat to Dubai is that it is becoming increasingly bracketed with failing economies and the longer the situation takes to resolve, the more difficult it will be for Dubai to repair its damaged image.
The extent of the debt is not even clearly given, with estimates ranging from US $80 billion to $US 170 billion, let alone plans to address the debt. Such vagueness is becoming less and less tolerated by the international community, especially countries like Britain which has strong business interest in Dubai.