New Dawn

Philip Adams.

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I have been in Dubai more than two years now and, like most UK ex-pats, get frustrated by the attitude of the UK press when reporting on Dubai.

Hence, the recent announcement of an injection of badly needed liquidity into the Dubai construction market filled me with a sense of satisfaction and demonstrates that perhaps things aren’t quite as bad as the hacks in the UK like to make out.

However, I hope that the momentum that has been generated by these announcements is maintained and more information is soon provided with respect to the details behind the proposals, as some questions do remain.

Let us analyse some of the press announcements. It has been quoted that contractors (trade creditors) will be paid 100% of ‘agreed amounts owed’. But what if, as is the norm on most construction contracts, large amounts are yet to be agreed?

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Will amounts not agreed be set aside to allow some cash to flow or will the agreement of these amounts impact on the initial 40% payment? In addition, might this effect the timing of the initial payments which are intended to commence in June as recently announced? It would also be a good opportunity to consider some way that the agreement of the un-agreed sums may be expedited to avoid long and costly disputes.

Furthermore, to avoid the risk of contributing to any further delay, contractors should review all un-agreed claims and ensure that they have been prepared to the required standard and include the necessary substantiation.

It has been further stated that the repayments to contractors and suppliers will consist of 40% cash and 60% ‘tradable security’, with an annual return of 10%. Some commentators have stated that the contractor can take the tradable security and transfer it immediately into cash, which then gets reinvested down the contractual chain and thus provides the long awaited liquidity.

This is just what the construction market needs, however, in reality, if a contractor actually did attempt to ‘transfer’ this security into cash, how much cash is it likely to generate? My concern is that the current global financial conditions, plus the fall-out from the sub-prime debacle, may adversely affect the market value of these tradable securities. For the majority of contractors cash is king and therefore, most of them will be eagerly awaiting more details of this particular aspect of the proposals.

The 10% return on bonds is conditional on trade creditors representing 95% of the value of all claims agreeing to the proposal. Is the reference to ‘all claims’ to include both agreed and un-agreed amounts? If so then securing the agreement of the 95% could be a very protracted process and risks being delayed by just a few large creditors. In addition, other reports state that the commencement of payment is conditional on written approval from a bank creditors committee which represents yet another hurdle.

Finally, it has also been announced that an initial US $1.5 billion will be made available to fund the completion of ‘near term’ developments ahead of a final agreement on the recapitalisation plan. Therefore, it would also be good if some clarity was provided with respect to the definition of ‘near term’.

Overall the recent announcements are positive news and I genuinely hope that it does bring about the desperate needed liquidity. However, the construction market needs more flesh on the bones of the deal without which we may lose a valuable opportunity to talk Dubai up and may inadvertently give the blinkered hacks back home more ammunition for their favourite game of Dubai bashing!

About the author
Philip Adams is an Associate Director at Systech in Dubai. He has provided commercial, contractual and dispute resolution advice on a range of projects. He is a member of the Royal Institution of Chartered Surveyors and a fellow at the Chartered Institute of Arbitrators.