Sheikh sacks powerbrokers

Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum has consolidated his hold on the debt-laden emirate, downgrading powerful figures behind the city-state's boom that turned to a bust.

Sheikh Mohammed on November 20 sacked the governor of the Dubai International Financial Centre, Omar Bin Sulaiman, who had led efforts to transform Dubai into a Middle East finance hub. A day earlier, he dropped Mohammad al-Gergawi, Sultan Ahmed Bin Sulayem and Mohammed Ali Alabbar from the board of Dubai's main holding company, the Investment Corporation of Dubai. The three were at the forefront of a construction drive that began in 2002 and collapsed last year after the global financial turmoil engulfed Dubai.

The moves herald greater consolidation of so-called Dubai Inc, the web of competing, state-owned companies that Sheikh Mohammed used to accelerate diversification of the second-largest member of the United Arab Emirates away from oil. Dubai is struggling under US$80 billion of debt amassed in the process.

The replacement of the DIFC governor is part of efforts to improve the efficiency of government institutions and companies, and "consolidate the emirate's growing importance as an international centre for finance, business, trade, tourism and all services," Mohammed Ibrahim Al Shaibani, director-general of the ruler's court, said on November 20.

This needs to be accompanied by much greater transparency and better co-ordination between the various state-run companies, said Tristan Cooper, a Dubai-based Middle East sovereign analyst at Moody's Investors Service.

"It's difficult to read too much into the personnel changes at this stage, but it would be encouraging if it helped to improve co-ordination and information flow within Dubai's large and disparate public sector," Cooper said.

Bin Sulayem is chairman of Dubai World, a state-run holding company that has about $59 billion of debt and other liabilities. It controls property developer Nakheel PJSC, which has had to cancel plans for a new waterfront development the size of Hong Kong Island. Nakheel has to repay a US$3.52 billion bond maturing in December.

Al-Gergawi is chairman of Dubai Holding, which owns developers including Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC. Tatweer has put on hold a project to build "Dubailand," a Disneyland-style leisure park that would be three times the size of Manhattan. Alabbar is chairman of Emaar Properties PJSC, the largest developer in theUAE, which is building the world's tallest tower.

The emirate will study the viability of projects more closely in the future, Sheikh Mohammed said on September 9. "We'll be more careful now," he said.

Dubai's real-estate market was the worst affected by the global financial crisis. Home prices have tumbled about 50 per cent from their peak, and may drop another 20 per cent this year, Deutsche Bank AG said in June.

The actions of Dubai's ruler may also be aimed at helping him shore up his position with regard to the wealthier neighbouring emirate, Abu Dhabi, said Jean-Francois Seznec, a professor at Georgetown University's Centre for Contemporary Arab Studies in Washington.

Abu Dhabi, which has 90 per cent of oil in the UAE, holder of the world's sixth-largest crude reserves, bailed out its fellow emirate in February with a $10 billion Dubai bond issue subscribed entirely by the UAE central bank. Dubai is seeking to raise another $10 billion, a significant portion from the federal government in Abu Dhabi.

Sheikh Mohammed is trying to salvage his business empire by merging assets, said Christopher Davidson, a professor at Durham University in the UK and author of Dubai: The Vulnerability of Success. "The ruler's main government-backed companies are on the verge of bankruptcy and rapid centralisation of these bits and pieces is needed to hold them above water," he said.

In June, Emaar said it was in talks to combine with Dubai Properties, Sama Dubai and Tatweer as it aims to control the supply of new buildings amid a glut of homes.

Alabbar shrugged off his removal from the board of the investment body. "As business goes on, all organisations restructure," he said. Al-Gergawi , Bin Sulaiman and Bin Sulayem did not respond to interview requests .

Ahmed Humaid al-Tayer, the new governor of the DIFC, which is home to regional offices of banks including Goldman Sachs Group Inc and Deutsche Bank AG, said yesterday he would pursue the same strategy as his predecessor. Al-Tayer is also chairman of Emirates NBD PJSC, the UAE's biggest bank by assets, and remains a member of the ICD board along with Al Shaibani, the head of the ruler's court. The other four board members are Sheikh Mohammed, two of his sons and his uncle.

The four sidelined Dubai powerbrokers have to some extent been made scapegoats, according to Simon Henderson, an expert on the Gulf monarchies at the Washington Institute for Near East Policy.

"They were given authority and access to capital and told to go out there and expand Dubai, they were given a licence and latitude, and to that extent, they were obeying orders," he said.

- BLOOMBERG