February 3, 2009 / 12:50 PM / 11 years ago

Dubai contractors face bankruptcy as cash dries up

DUBAI, Feb 3 (Reuters) - Several Dubai-based contractors say they are owed millions of dirhams by state-linked developers and some may face bankruptcy as credit dries up and major projects are cancelled or scaled back in the former Gulf Arab boom town.

“There has been a marked increase in the number of contractors asking for help to obtain payment, including payments certified months ago on some of Dubai’s largest projects,” Michael Grose, a partner at legal firm Clyde & Co LLP, in the Middle East Projects and Construction Group, told Reuters.

“Whilst there is definitely an upswing in restructuring advice, no construction businesses are coming through the door wanting to put themselves into liquidation. Yet.”

As the global financial crisis began to hit the seaside emirate late in 2008, major government-linked developers behind some of Dubai’s high profile projects have put work on hold and cut jobs.

Around $75 billion worth of projects in the United Arab Emirates have been suspended or cancelled altogether according to an HSBC report issued in January. “We have had to let go half of our staff and cut wages and it is not because we have no work, it is because we are not being paid for the work that we have completed,” a Dubai-based contractor told Reuters under the condition of anonymity.

“Contracts are not worth the paper they are written on. They don’t understand that the work gets done and you have to pay for it. There is a sense among the big developers that because they are linked to the government, they can do what they want.”

In response to a Reuters query, government-linked developer Emaar Properties (EMAR.DU), the largest listed Arab developer, said payments were based on a credit cycle and other conditions and that those that qualified would be paid.

“All payments that meet the criteria have been honoured and will continue to be honoured and will continue to be cleared, in line with contractual agreements,” a spokesman said.

Government-owned Meraas said in statement sent to Reuters that payments and payment schedules in the company are an internal matter and therefore details are confidential between the company and its contractors.

OVERDUE BILLS

One deputy chief executive with a consulting firm, who had a contract terminated by a major developer, said his firm was owed several million dirhams, now overdue, and did not know when he would be paid.

“Will the government bail the industry out? Well, has the government got the money?” he said.

Dubai — home to palm-shaped islands, an indoor ski slope and the world’s tallest building — has lured investors in droves over the past few years, but is now being hit hard by the global financial crisis.

Cranes that operated day and night before the crisis now stand motionless and many of the building sites are deserted as thousands of construction workers have been ordered to down their tools.

“Established developers or developers who have projects near completion will be in a better position than others (to make payments),” said Abeer Gouda, senior financial analyst at Global Investment House in Kuwait.

“It will depend on the developer’s track record and the project itself, if it is near completion and on the location.”

State-owned Nakheel, developer of Dubai’s palm-tree shaped islands, said last month it would halt work on a 1-kilometre tall building for one year. [ID:nLE188162]

That decision followed the suspension of work on Trump Tower, a $789.5 million project on one the palm-shaped islands, in December. The developer cut 500 jobs in November. [ID:nLU32171]

Meraas in December said it would review its $95 billion Jumeirah Gardens project launched at a Dubai property exhibition. [ID:nL3557601]

“Payments have always been a problem here, but now the problem is a bit bigger. I reckon the Dubai government would honour their payments but you might have to wait longer than usual,” said the regional director of a construction group.

“Dubai cannot afford not to honour its debt to contractors.”

Developers Nakheel and Sama Dubai did not respond to Reuters enquiries on possible delays in payments. (Additional reporting by Lin Noueihed; Editing by Thomas Atkins and Simon Jessop)

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