Tecom quells fears of Smart City standstill as Dubai World stuns the world with a request to stall €39 billion in debts for the next six months
Matthew Vella The developers of Smart City have had to reassure the Maltese public yet again of their intention to complete their multi-million euro ‘internet city’ in Kalkara, after a slowdown in Kerala, India was accompanied by news that the Dubai government was asking for a six-month standstill on repaying its debts at Dubai World, its flagship holding company.
Dubai World, which has total debts of €39 billion, wants to postpone its forthcoming payments until May 2010, after it was hit hard by the global credit crunch and recession.
Smart City Malta is owned by Tecom Investments, a property subsidiary for Dubai Holdings. Along with Dubai World and the Investment Corporation of Dubai, Dubai Holdings forms part of the emirate’s three flagship holding firms.
As news broke of the debts afflicting Dubai World on Thursday, Smart City chief executive Fareed Abdulrahman issued a statement saying Tecom was “fully committed” to Smart City Malta “despite delays beyond our control in Kerala” – referring to Indian counterpart Smart City Kochi.
Earlier on, Kerala’s chief minister Velikkakathu Achuthanandan publicly expressed doubts about Tecom’s ability to finish their project, with Kerala press reporting the minister saying that “Tecom in Malta may also not be doing too well.”
A Tecom spokesperson said Smart City Malta had the full support of its parent company. “To demonstrate the financial solidity of Tecom we have extended an invitation to V.S. Achuthanandan to visit our business operations in Dubai and to highlight our exhaustive portfolio of business parks.”
Debt standstill But the big news of the week was Dubai’s quasi-default on its billion-dollar debts. Stock markets reacted with major falls in their indexes as Dubai World is the centrepiece of the emirate’s economy.
Dubai World also owns Nakheel Hotels, an investment subsidiary that owns a strategic 43% of International Hotel Investments, together with the Malta-based Corinthia Group. Nakheel will now have to scale back completion of projects such as the Palm Jumeirah, the manmade island created using land reclamation.
Investors fear Dubai’s rollercoaster climb to the top will crash into defaulting credit payments. Bankers expressed anger that Dubai officials had previously reassured them they would meet all obligations in spite of the recession and a real estate crash.
In another blow to investor confidence, rating agencies Moody’s and Standard & Poor’s cut the ratings on several of Dubai government companies to Baa2 – two levels above ‘junk’, which means bonds from these companies are at higher risk of default.
MaltaToday’s business columnist Mark Lamb said the latest development had been foreseen. “Following the mother of all spending sprees, I had written back in September that Istithmar World could be faced with liquidation and its real estate unit Nakheel was struggling to refinance the $3.52 billion Islamic bond set to mature in December… the widespread fallout of Middle Eastern money drying up should not easily be discounted. Clearly Dubai World’s decision to delay repaying its debt mountain has much wider implications.”
Sama Dubai, a partner in the Smart City Malta venture, is a member of Dubai Holding – Mark Lamb said that although itsb bonds are not yet directly affected, they have a $1.25 billion bond due for repayment in June 2010, and two separate bonds of $1.16 billion and $1.5 billion due in August 2011. “The question is: can they repay them on time?”
Dubai accumulated €53 billion of debt by expanding in banking, real estate and transportation before credit markets seized up last year. Bloomberg reported a growing concern among investors because Dubai is not saying how it will pay more than €6 billion of debt in the coming four months. Dubai has borrowed €3 billion from the Abu Dhabi emirate-controlled banks.
Dubai is the second biggest of seven sheikhdoms that make up the United Arab Emirates, and home to several real estate wonders. But it suffered the world’s steepest property slump in the global credit crisis when property prices fell 50% from their 2008 peak. Dubai emir Mohammed bin Rashid Al Maktoum had to turn to Abu Dhabi, the UAE capital, for its bailout.
Smart till the end Malta’s relationship with Tecom and Dubai started in 2005 when Tecom came to in 2005 to use Maltacom’s data centre for a co-location service (Tecom later bought a 60% stake in Maltacom, now rebranded as GO plc). Claudio Grech, then right-hand man to investments minister Austin Gatt and today chairman of the Malta IT Agency (MITA), started discussing how to replicate what Tecom had done with Dubai Internet City.
Maltacom was set up for privatisation to Tecom, which spearheaded its bid with its commitment to create Smart City. Grech himself led the government team in negotiations with Tecom between 2005 and 2007, before being employed as Smart City Malta chief executive by Tecom.
At the same time, Grech also held the post of MITTS (predecessor to MITA) chairman, an appointment that opened him up to claims of conflict of interest: “The fact that the former head of secretariat to Austin Gatt is the CEO of Smart City Malta and now also MITTS chairman, could lead to a potential conflict of interest for the man who is formulating Malta’s IT policy,” Labour MP Chris Cardona had said.
In August 2009, Grech denied claims that he was serving his notice, stressing that he was on holiday. Just a month later, Grech cited “diverging operating views” and left Tecom.
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