In a place where there is very little transparency among business and government – and the ties that bind the two – the best place to get information lately about the health of UAE Inc. is bond documents. The capital markets, it seems, will not accept the non-responsive, non-information that local media frequently print unquestioningly.
Bloomberg, which got a copy of the prospectus, reported on Monday that Abu Dhabi said it does not back the debt of TDIC (the emirate’s Tourism Development & Investment Co.), which plans to bring to market $3 billion in bonds sometime this year. TDIC is developing some of Abu Dhabi’s flagship projects — including Saadiyat Island, home to the new Louvre and Guggenheim museums — designed to diversify its economy away from oil.
On the one hand, this could be taken as a lesson learned from Dubai’s ill-advised “standstill” declaration in late 2009, which asked for a halt to debt payments and told the markets, Yeah, I know you thought Dubai was going to back the debts, but actually no, we’re not. Stocks across the globe plummeted at the surprise announcement. About a month later, Abu Dhabi stepped in with a $20 billion bailout to move Dubai away from the fiscal cliff’s edge.
Since then, Abu Dhabi certainly has gone on a Dubai-style spending spree, with some of the same pocketbook constraints, as I wrote in TIME last January. Now, as TDIC is slashing its budget and “hibernating” some projects, according to Bloomberg, some observers say they believe the clarification in the TDIC bond documents is an honest move that investors will value.
A columnist for Reuters, however, disagrees. Una Galani points out that Abu Dhabi also states that it “backs TDIC fully and unconditionally.” That “mixed message is similar to what led Moody’s last month to cut the credit rating of Aldar, the property company that built the island home to the Ferrari World theme park,” she writes. “The ratings agency then cited uncertainty over future government support for the developer, already the recipient of a $5.2 billion bailout.”
Both entities are charged with leading projects key to the emirate’s future economic development. But Aldar gets money and TDIC doesn’t? I guess we’ll know more by investors’ reactions when/if this bond issue comes to market.