Abu Dhabi-Dubai relations tense as Amlak and Tamweel merger delayed; Dubai newspaper suspended

Events in the past weeks indicate that relations between the two leading emirates in the UAE federation have tensed. The first is a court ruling in Abu Dhabi to suspend El Emarat Al Youm Arabic-language daily newspaper, owned by Dubai’s ruler Sheikh Mohammed, from publication for 20 days. The reason was an article alleging that members of the Abu Dhabi royal family doped horses taking part in horse racing.

The second, more serious event is the delay in the proposed merger of Dubai-based mortgage lenders Amlak and Tamweel.

The fate of the merger has been under review since the UAE announced in November it would merge the firms with two other state-controlled banks (Emirates Real Estate Bank and Industrial Bank) to create the 10 billion dirham (US $2.7 billion) Emirates Development Bank. The merger would have to be backed by the Abu Dhabi controlled federal government.

The immediate future of the lenders was thrown into further doubt last week when the UAE Federal National Council (FNC) failed to agree on a law governing Emirates Development Bank. FNC members pushed a decision back four months until their next meeting due to concerns over the reasons behind the merger and the new state-backed bank’s role. One of the main causes for the FNC’s concern was the proposed overseas activities for the new merged banks. Before the decision by the FNC, the UAE cabinet approved a draft law for the formation of the Emirates Development Bank comprising only the Emirates Real Estate Bank and the Industrial Bank, but no mention of Amlak and Tamweel was made in the cabinet draft law.

6 July 2009



Analysis and forecast (↑ increasing risk)




Events in the past month all indicate that relations have become strained between Dubai and Abu Dhabi. Last month, the sacking of Dubai’s former finance chief indicated a change in political alignment and priorities for the Dubai leadership.

The court order by Abu Dhabi to suspend the publication of El Emarat Al Youm may not directly result in further repercussions, but is nonetheless an indication of the severity of the unease between Dubai and Abu Dhabi.

However, the event that will undoubtedly have an impact on Dubai’s already hard-hit economy is the delayed merger of Amlak and Tamweel. The two housing finance providers controlled more than half of Dubai’s once-booming housing finance market but their lines of credit dried up in the wake of the global financial crisis and the government was forced to look at merging the struggling Islamic mortgage lenders. The intervention of the federal government last November to help the two lenders by merging them with two Abu Dhabi banks, were seen by some as a lifeline needed to ensure that Dubai’s collapsing real-estate market was saved.

Despite the complete confusion surrounding the fate of the merger, with conflicting announcements, it is certain that no merger will take place until at least December 2009. The cabinet has approved a draft law on the formation of the Emirates Development Bank, without mentioning Amlak and Tamweel but only the other banks in the proposed merger. This indicates that there are serious question marks raised about the viability of the merger including Amlak and Tamweel who have been left out of the draft law according to government announcements. The concerns raised by the FNC reinforces the uncertainty surrounding the inclusion of Amlak and Tamweel in the new entity.

This is a serious set-back for the Dubai real-estate market, where house prices have been falling since last year due to oversupply and lack of lending. The emergence of a strong lender would have contributed to alleviating some of the woes facing the real-estate market but with this being delayed, there are little prospects for the recovery of the real-estate market in 2009. On a more general scale, the events point to the fact that Abu Dhabi may not be as willing to bail-out Dubai to the extent previously hoped by investors, putting even further strain on the Dubai economy.

The figure below shows the change in the average price of the real-estate in Dubai (projected from July 2009 onwards). The anticipated drop in the third quarter 2009 is partly due to more supply being put on the market as projects under construction are completed.





Dubai’s economy faces more difficulties as lay-offs continue and Nakheel revises payment for its bonds



A number of events in the past two weeks indicate that Dubai further financial difficulties, after a period of improved optimism.

Dubai government-owned developer Nakheel announced the laying off of 400 to 500 staff, the second time it has done so since the start of the crisis. Nakheel, also said that it plans to revise the payment terms of its US $750 million Sharia-compliant bond, or sukuk, which matures in 2011.

Data also shows that over 10% of expatriates have lost their jobs in the UAE, mostly in Dubai. Other data shows that over 25 % of cheques written in Dubai have bounced back, as defaults on payments across the economic sectors continue, but more so in the construction and real-estate sectors, the back-bone of the Dubai economy.

14 July 2009



Analysis and forecast (↑ increasing risk)


The combination of negative news about Dubai’s economy comes after a brief period of optimism in the second quarter of 2009.

Although the announcement from Nakheel about the payment terms of its sukuk is not a serious change, it confirms the market fears that a restructuring of the sukuk is being seriously contemplated, and without additional information from the company this notice will further fuel speculation. There is therefore an added uncertainty coming from a government-controlled company that can only add to the anxiety of investors and raises serious questions about the health of the Dubai economy.

The number of people who have lost their jobs is in line with Political Capital’s prediction earlier this year about a projected drop of the population of Dubai due to lay-offs. Expatriates who lose there jobs are given limited periods of time to remain in the country before having to leave, leading to a population drop.