Banks yesterday welcomed a move by Standard & Poor’s to upgrade the creditworthiness of Mashreqbank, based in Dubai, and factor an increasing level of government support into ratings of other lenders in the UAE.

A spokeswoman for National Bank of Abu Dhabi, which had its “A-plus” rating confirmed by S&P on Wednesday, said the bank was “pleased” with the action.

The upgrade and boost in government support assumptions for banks appears to buck a recent trend in which the three big international agencies – S&P, Moody’s Investors Service and Fitch Ratings – have taken an increasingly sceptical view of support for state-owned companies in the region.

But Jan Plantagie, the regional manager for the Middle East at S&P, said the change was simply a reflection of recent assurances its analysts had received of backing at the federal level for the banking system.

“I don’t think we have reduced the level of government support for the banks, which has always been based on federal support rather than local support,” he said. “We have spoken to the Central Bank and other authorities to get an update on that.”

Mashreq had its ratings raised to “BBB” after S&P gave it an assumed government support uplift of two ratings notches, replacing a one-notch uplift.

Abu Dhabi Commercial Bank’s standalone rating – a ranking of its creditworthiness without factoring in government support – was lowered by a notch, but its uplift from government support was raised from two to three notches. That resulted in the bank keeping its “A” rating.

Ratings for Dubai Islamic Bank remained the same, but a review for a possible downgrade was withdrawn. Ratings for the National Bank of Abu Dhabi and Sharjah Islamic Bank were left unchanged.

“I think you have to see where the primary support comes from and obviously the banks are in a different category than the corporates because the banks are regulated by the Central Bank,” Mr Plantagie said.

The Central Bank has stepped in on several occasions to support local banks during the global downturn. It has guaranteed interbank loans and injected Dh120 billion (US$32.67bn) into the banking system in the form of borrowing facilities and deposits.

“Standard & Poor’s believes that the UAE authorities have a strong incentive, as well as a willingness and capacity, to preserve the stability of their banking sector,” the agency said.

“In our view, the UAE Government has a strong track record of support towards the banking system, and we note that it has taken several measures to boost liquidity in the recent past.”

The strengthening assumptions of support for banks contrast with a dimming view of emirate-level support for state-owned corporations. That change in attitude followed the announcement last year of the government-owned conglomerate Dubai World’s debt restructuring and has already resulted in downgrades.

Many companies in Dubai have seen their ratings reduced by all three agencies since the end of last year and S&P on Wednesday downgraded the ports operator DP World, the property developer Emaar and the Dubai Multi Commodities Centre.

The agencies have even begun to view Abu Dhabi-based companies as no longer unconditionally supported by the Government. Moody’s lowered its ratings last month of six Abu Dhabi Government-owned companies, and on Wednesday S&P placed four of them – the Tourism Development and Investment Company, the International Petroleum Investment Company, Mubadala Development and Aldar Properties – on a review for a possible downgrade.

Simon Williams, HSBC’s chief economist for the Gulf region, said the downgrades and reviews in Abu Dhabi had not had, for the most part, a measurable effect on their borrowing costs or perceptions among investors. Lower ratings generally translate into a higher level of perceived risk, leading investors and banks to demand higher interest rates on a company’s borrowings.

Mr Williams said, however, that the importance of the agencies in swaying investors’ decision-making had altered since the global downturn.

“I think the world has changed,” he said. “I’m not sure that ratings agencies carry quite the same influence they once did in light of the experience of the past few years.”

In addition to its modification of bank ratings and downgrades in Dubai, S&P left two Dubai-based entities on review for downgrades because the agency had “insufficient information” to make a rating decision.

DIFC Investments, a subsidiary of the Dubai International Financial Centre that manages the centre’s subsidiaries and other holdings, and JAFZ Sukuk, a vehicle set up to issue an Islamic bond for the Jebel Ali Free Zone Authority, had yet to submit adequate financial information for S&P to make a full review, Mr Plantagie said. Both were co-operating with S&P, he said.

afitch@thenational.ae

WASHINGTON (MNI) – The plan to restructure the debts of struggling conglomerate Dubai World Group is unlikely to have direct negative rating implications for banks in the United Arab Emirates, Moody’s Investors Service said Thursday.

The report also warned that the restructuring may influence lending to banks in the UAE and beyond in the region and that it is “likely to translate into a much higher cost of funding.”

In a special comment assessing how the restructuring will be managed by UAE banks, the rating agency warns that sustained adverse economic conditions are continuing to pressure the country’s banking system.

March 25, the Dubai government announced a proposed framework to restructure Dubai World’s massive debt, saying that through the Dubai Financial Support Fund (DFSF), it will support these proposals with a commitment to fund up to $9.5 billion in new funding over the business plan period. The plan would be funded by $5.7 billion remaining from the loan previously made available from the Government of Abu Dhabi and from internal Dubai Government resources.

In its proposal, Dubai World said the Government of Dubai acting through the DFSF is proposing to convert $8.9 billion of debt and claims, representing 38% of the total amount of standalone debt and guarantees of Dubai World, into equity, subordinating its claims to other creditors.

“Although the plan has not yet been finalized and the lack of detail prevents us from fully assessing potential impairment losses, Moody’s initial assessment is that, by itself, banks’ exposure to the DWG is not likely to cause rating downgrades for the UAE banks,” said John Tofarides, Moody’s Analyst and author of the report.

The report warned, however, that a continuation of the weakening asset quality trend in the UAE could push 2010 profitability into negative territory for some banks. It notes that currently, of the 13 banks that Moody’s rates in the UAE, four have a negative rating outlook and another four are on review for possible downgrade — the remainder have a stable outlook.

Rating pressures are more evident among Dubai-based banks than those is more fiscally secure Abu-Dhabi, Moody’s said.

The Dubai government’s restructuring proposal provides a framework within which 100% of the principal amount due is to be repaid, but through extended tenor periods. For DWG, the proposed tenor extension will be achieved through two new debt issuances, one with a five-year maturity and the other with eight years to maturity.

Pointing out that no information regarding the potential coupons has yet been released. Moody’s said this information will be key to assessing the precise impact of the restructuring on the banks. Depending on different coupon assumptions, the agency estimates up-front losses could vary between zero to 25% of the loan values.

“Moody’s conservatively estimates that no more than AED37 billion (or US$10 billion) of UAE banks’ exposures relates to the DWG proposed restructuring,” Tofarides wrote, “Using this estimate as the basis for our maximum loss calculation, even a 25% impairment loss represents three to four months of pre-provision earnings for the rated banks, which can therefore be easily replenished.”

The impact varies considerably from bank to bank, he added, because for the most exposed banks, the maximum loss from DWG could amount to six to 12 months of pre-provision profits. This risk comes at a time when profitability is already under pressure as a result of the country’s adverse economic conditions, he said.

The report also discusses how the DWG restructuring is likely to influence bank lending to other government-related issuers in the UAE, and possibly the wider region. Moody’s believes that banks are becoming more cautious and that, in the future, they may assess government-related entities on a stand-alone basis, placing considerably less emphasis on longstanding assumptions of implied government support.

“Looking ahead, limited financial transparency is likely to translate into a much higher cost of funding for these entities, unless explicit government guarantees are provided or their level of public disclosure significantly improves,” it concluded.

INTERNATIONAL. MENA equity markets outperformed global markets this month as the MSCI Arabian Markets Index climbed 6.4% on the back of positive performances from all regional markets.

This compares with a monthly gain of 5.9% on global indices as measured by the MSCI World Index. On a year to date basis the region has also performed well, climbing 11.5% as compared to a global gain of 2.7%.

The Dubai World restructuring news from the UAE dominated regional markets in March.  In the last week of the month, the Government of Dubai announced the long awaited restructuring proposal for Dubai World and Nakheel; the terms of which were well received by investors.

The DFM and ADX rallied quickly and sharply on the back of the announcements.  The sukuks and bonds of the affected companies also appreciated.  Furthermore, sentiment improved and spread to the neighboring GCC equity markets, sukuks, and bonds of other closely related companies.

As a result, the DFM was the best performing market in March with a 15.7% return.  The Tadawul also generated strong returns, up 5.6%, bringing its year to date gains to 11.1%, the highest of the Arab markets.

Recovering from last month’s dip, the EGX30 index experienced a more positive performance and rose 2.6% amid blue chips’ earnings results, expansion plans along with various macro economic indicators.  The Omani market had the slowest month, gaining a mere 0.1% with very low activity.

Saudi Arabia

The Tadawul index closed up 5.6% by the end of March and became the leading regional market year to date with gains of 11.1%. Market heavyweight Saudi Basic Industries Corporation (SABIC) continued to positively impact the index, climbing 12.1% as the company successfully developed a fourth-generation catalyst used in the production of polypropylene.

Saudi Electricity Company gained 3.3% during the month as the company signed contracts worth SAR 618.5 million to build five substations in Riyadh.

The projects include a SAR226.5 million contract with Al Toukhi Company for Industry, Trading and Contracting to build four substations within 27 months and a SAR392.0 million contract with Saudi Arabia’s National Contracting Company to build a station in the next 29 months.

Meanwhile, Saudi Arabian Mining Company was also among the stocks that performed well during the month, increasing by a significant 13.1%.

In the banking sector, Banque Saudi Fransi fell 1.1%.  Fitch Ratings affirmed its Long-term Issuer Default Rating (IDR) at ‘A’ with a stable outlook, while Short-term IDR was affirmed at ‘F1′, individual rating at ‘B/C’, support rating at ‘1′ and support rating floor at ‘A-‘.

Moody’s Investors Service assigned ratings to the bank’s US$2.0 billion medium term note programme (EMTN). The agency assigned ‘Aa3’ and ‘A1’ to senior unsecured and subordinated notes, respectively, both with a stable outlook.

On the macro front, Saudi Arabian Monetary Agency (SAMA) data shows that Saudi money supply growth slowed for a fifth consecutive month to 5.6% in February compared with an 8.3% growth in January.

Central Bank’s foreign assets inched up 1.2% to SAR 1.55 trillion in February compared to SAR 1.54 trillion in January, while annual inflation rates grew to 4.6% in February, from 4.1% in January.

Saudi Arabia’s imports grew 22.6% to 4.3 million tonnes, while exports dropped 6.3% to 6.4 million tonnes. The government also indicated plans to spend USD 170.0 billion over the next five years on energy and oil refining projects.

UAE
Following the long awaited restructuring announcement from Dubai World, the DFM was the strongest Arab market in March, surging 15.7%.

The ADX index also performed positively and closed up 7.6%.  After much anticipation and speculation, the news that the Dubai government will recapitalise its indebted Dubai World flagship and the conglomerate’s Nakheel Property unit with as much as US$9.5 billion in new funds through its Dubai Financial Support Fund (DFSF) was well received.

The Dubai World debt restructuring plan includes converting US$8.9 billion of debt and claims, representing 38.0% of the total amount of standalone debt and guarantees of Dubai World, into equity, subordinating its claims to other creditors. In addition the DFSF will commit up to US$1.5 billion in cash to fund the company’s working capital and interest payment commitments that will arise from the new debt facilities.

Dubai World is proposing to repay its creditors excluding DFSF in full with a 100.0% principal repayment through the issuance of two tranches of new debt maturing in five and eight years. In a positive development, Limitless, a property development unit of Dubai World, paid creditors interest for a US$1.2 billion loan due at the end of March 2010.

Nakheel also unveiled a comprehensive recapitalization plan of its debt and liabilities. The plan enables Nakheel to offer creditors 100.0% of agreed amounts owed and to fulfill its obligations to customers through the prompt completion of near-term projects. Under this proposal, the Government of Dubai, through the DFSF, will commit to providing approximately US$8.0 billion of new money directly to Nakheel to fund operations and settle liabilities.

In addition, the DFSF has proposed to convert its existing US$1.2 billion debt claim in Nakheel into equity. However, ahead of a final agreement on the recapitalization plan, an initial USD 1.5 billion of the new funds from the DFSF will be made available as required to Nakheel to fund contractors to continue building near-term development projects.

In the banking sector, the deputy Finance Minister, stated that UAE banks are strong enough and have sufficient capital to absorb any shock, including the impact of the Dubai World restructuring.

However Central Bank data showed that the banks’ NPLs increased by 0.6% in February compared to January with expectations to climb further particularly after the Central Bank stated that it is in the final stages of issuing new provisioning norms.

Union National Bank had a strong performance, up 15.2%, after Fitch Ratings affirmed its Long-term Issuer Default Rating (IDR) at ‘A+’ with a stable outlook, its Short-term IDR at ‘F1’, individual rating at ‘C’, support rating at ‘1’, support floor at ‘A+’ and senior unsecured debt at ‘A+’.

The agency also affirmed National Bank of Abu Dhabi’s strong rating, based on the performance during the global financial crisis. It affirmed the bank’s Long-term Issuer Default Rating (IDR) at ‘AA-’ with a stable outlook, Short-term IDR at ‘F1+’, support rating at ‘1′ and support rating floor at ‘AA-’. The ratings positively impacted the stock which climbed 21.7%.

The real estate sector was also up with Union Properties climbing 8.5%. This came despite a breach of contract case filed against the company by more than 30 investors, regarding the non-delivery of homes in its Index Tower project.

Meanwhile, Aldar Properties expects default rates to hover between 5%-7% in FY 10, but has not initiated any foreclosure moves.

The company is also targeting the delivery of 2,200 units over the next eighteen months. Aldar Properties’ stock performed exceptionally well during the month, gaining almost 30.0%. Heavyweight Emaar Properties was also up on significant gains of 34.2%.

On the macro front, the head of Dubai’s Department of Finance stated that the emirate plans to reduce spending by 15.0% during 2010, in an effort to achieve a budget surplus by 2011. According to the Minister of Economy, the UAE economy grew by 1.3% in 2009, and is expected to grow by approximately 3.2% in 2010.

Kuwait
Continuing its bullish trend, the Kuwait Stock Exchange gained another 2.1% during the month of March. Commercial Bank of Kuwait’s earnings release, Kuwait International Bank’s credit ratings, and the forming of a joint committee by banks, to take legal action against the Saad and Algosaibi groups were the main catalysts affecting index performance during the month.

Commercial Bank of Kuwait (CBK) was up 1.1%, despite reporting a 32.5% drop in FY 09 net profits to KWD 173.7 million. The bank’s NPL ratio stood at 19.2%. Meanwhile, Fitch Ratings affirmed Kuwait International Bank’s Long-term Issuer Default Rating (IDR) at ‘A-’, Short-term IDR at ‘F2′, individual rating at ‘C/D’, support rating at ‘1′ and support rating floor at ‘A-’, with a stable outlook on the Long-term IDR. The bank gained 1.8% during March.

In other sector related news, a number of Kuwaiti banks including Gulf Bank, Commercial Bank, Burgan Bank and Kuwait Finance House founded a joint committee to launch legal proceedings against the two troubled Saudi business groups, Saad and Algosaibi, for debt estimated at around USD 1.5 billion. This follows months of failed negotiations with the Saad and Algosaibi groups.

On the macro front, Kuwait’s total state earnings reached KD 16.01 billion during the period April 2009 to February 2010. These revenues are 98.4% higher than the current FY’s estimated earnings of KWD 8.07 billion, but 20.8% lower than the same period in FY 2008-2009.

Qatar
After its 4.8% rebound last month, Qatar’s DSM continued climbing to gain 8.6% during March and was the second best performing market on a month to date basis.

Fitch Ratings affirmed Commercial Bank of Qatar’s (CBQ) Long-term Issuer Default Rating (IDR) at ‘A’ with a stable outlook, Short-term IDR at ‘F1′, individual rating at ‘C’ and support rating at ‘1′. The support rating floor is affirmed at ‘A’. The CBQ share price reacted positively to increase by 15.1% during the month.

Meanwhile, Moody’s Investors Service placed an ‘A1′ long-term rating on Qatar Telecom (Qtel), an ‘A1′ rating for Qtel International Finance Limited and an ‘A1-’ rating for bonds issued under Qtel’s GMTN programme under review for possible downgrade.

The new ratings followed Moody’s change in outlook to negative from stable of the ‘Ba1’ Corporate Family Rating for “Indosat”, a 65% Qtel owned subsidiary. As a result, Qtel’s stock incurred a 3.2% loss in March.

Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed Qatar International Islamic Bank (QIIB) long-term foreign currency rating of ‘BBB+’, its short-term foreign currency rating of ‘A2′ and its financial strength rating of ‘BBB+’, with a stable outlook on all ratings. Additionally, CI affirmed the support rating of 2. QIIB recorded monthly losses of 5.1%. Meanwhile, Qatar Islamic gained 7.5% over the course of the month.

On the macroeconomic front, the Prime Minister stated that Qatar’s economy is expected to grow by 16.0% in FY 10/11. According to the Minister of Finance, Qatar will boost its government budget spending to QAR 117.9 billion for the FY 10/11, up from QAR 94.5 billion in FY 09/10. Revenues were set at QAR 127.5 billion for the coming fiscal year, compared with QAR 88.7 billion in 2009/10.
Oman
The MSM index traded sideways, up a mere 0.1% at 6,697.5 points after a month of minimal activity. On a YTD basis the index has gained 5.2% which is in line with other markets.

Of particular note, Bank Dhofar significantly outperformed the market, up 9.2%, after reporting a 7.2% annual growth in 2009 net profits. Oman Holding International, on the other hand, fell by 4.9%.

During the month shareholders’ provided approval to acquire Al Salamah Clinic and to enter into a new venture with Sagar Medical Group of India to upgrade Salamah’s Clinic to a Polyclinic. Shareholders also approved the acquisition of the Muscat branch of Occupational Training Institute by Douglas OHI LLC, a subsidiary of Oman Holding International.

Meanwhile, the Omani Central Bank stated that Oman is expected to issue OMR 122.0 million in domestic bonds at the end of 2010. It added that the banking system is sound and resilient to shocks; however banks need to improve their efficiency and tighten internal controls.

On the macroeconomic front, Oman’s real GDP is expected to grow by 6.0% in 2010 while nominal GDP is expected to increase by 18.4%.  The government further expects a budget surplus in 2010, on the back of higher oil prices which are expected to range between USD 60-80 per barrel.

Egypt
Recovering from last month’s dip, the EGX30 index rose 2.6% bringing YTD gains to 9.6%, rendering Egypt the third best performing market after Saudi and Morocco since the beginning of the year. Earnings announcements marked stock performances this month.

Orascom Telecom Holding reported a FY 09 net income of EGP1.8 billion, representing a 25.0% decrease compared to FY 08. According to the company’s press release the company recorded a US$50.0 million tax provision for Orascom Telecom Algeria’s (OTA) tax assessment in FY 09, of which US$40.0 million was recorded in fourth quarter 2009.

In that essence, OTA received a rejection on its submitted administrative appeal which was against the notice of the reassessment received from the Algerian Tax Department in respect to the tax years 2005, 2006 and 2007.

OTH also estimates losses from recent riots in Algeria to be around USD 55.0 million including the loss of revenue opportunity, damages of stock (SIM and scratch cards, handsets) and provision for taxes and an additional US$41.0 million in losses, because of damage to physical assets net of insurance and provision for income taxes.

On another note, S&P announced that it raised OTH’s long-term corporate credit rating to ‘B-’ from ‘CCC+’, with a stable outlook. It is worth noting that S&P also removed OTH from credit watch.  Following an eventful month, OTH lost 6.8%.

Telecom Egypt also placed downward pressure on the telecom sector as the stock fell sharply during March and lost 12.4%, as the company reported earnings which were below consensus estimates.

FY 09 earnings came in at of EGP 3.1 billion, an annual increase of 9.4% compared to FY 08.

The results imply a Q4 net income of EGP 481.0 million, a decrease of 41.7% compared to Q3 09 and a decrease of 20.0% compared to fourth quarter 08.

On the other hand, market heavyweights Orascom Construction Industries (OCI) and EFG-Hermes performed well as both stocks climbed 11.2%.

This came despite reporting a decline in earnings as OCI’s FY 09 net profits came in at 2,416.5 million, compared to FY 08 net profits of EGP 3,998.8 million, representing a drop of 39.6%. Meanwhile, EFG-Hermes’s FY 09 net income of EGP 551.8 million represented an annual decrease of 40.9% compared to FY 08.

The Central Bank of Egypt stated that Egypt’s net foreign reserves reached US$34.3 billion in February 2010, an increase of 0.3% compared to January 2010.

The two-storey luxury villa rises up like a Bond villain’s lair from the immaculately manicured lawn.Swaying palms shade it from the glaring Arabian sun and shelter it from prying eyes. To one side is an infinity pool, while on the other the alluring turquoise of the Persian Gulf, teeming with silver fish, appears to stretch out to infinity itself.

The only connections with the outside world are a jetty for speedboats and a helipad. Security guards patrol the beach, making it clear that visitors are not welcome. This is the paradise playground where Sheikh Mohammed bin Rashid Al Maktoum comes to fish. The Cambridge-educated ruler of Dubai, Sheikh Mohammed is best known in the UK for his love of horse racing, and as founder of Godolphin Stables.

His irresistible idyll is at the heart of The World, a collection of 300 man-made islands sculpted out of sand, a 15-minute boat ride off the coast of Dubai. In a five-year project beginning in May 2003, 320 million cubic metres of sand were dredged from the sea to create the islands. They were built inside a lagoon protected by a 17-mile breakwater, made up of 34 million tons of rock.

The islands vary in size from 120,000sq ft (one and a half football pitches) to 450,000sq ft (six football pitches), with 100m of clear water between each. Such was the scale of the enterprise that you could only make out the shape of the islands modelled on Africa, Europe, the Americas and Asia from space. Sheikh Mohammed’s particular island represents Greenland but, more importantly, it was designed to symbolise the allure of The World and to lure in investors.

An estimated $14 billion was sunk into the project. In 2008 master developer Nakheel, effectively owned by the government, boasted that 70 per cent of the islands had already been sold. Developers, financiers, global banks, building giants and investors flooded in. But look out now from the fine white sandy shores of ‘Greenland’ and all you can see is emptiness and desolation. Instead of a millionaire’s playground there are 299 mounds of bare sand sweltering in the 40 degrees centigrade heat. Not even a desert-island shack has been built on any of the other islands, much less a luxury villa, boutique hotel, Michelin-starred restaurant or jasmine-scented spa.

What happened, of course, was 2008’s global financial crash. Virtually overnight property values halved and the market collapsed. Hundreds of billions of pounds’ worth of building contracts were put on hold or simply disappeared in a puff of sand. It wasn’t until November last year that the full scale of Dubai’s debts began to emerge. Dubai World, which is the government investment arm that oversees Nakheel, was in hock to the tune of $60 billion.

Only a last-minute intervention from Dubai’s oil-rich neighbour Abu Dhabi prevented the state from falling over the edge of a financial precipice, with a $10 billion bailout to hold off creditors.

But as the future of The World and Dubai still hangs in the balance, one developer is daring to take the biggest gamble of his life, to the tune of a billion dollars.

The orange dumper truck rolls laboriously across ‘Sweden’ and then after a brief detour through ‘Monte Carlo’ crosses the sand causeway to reach the shores of ‘Germany. As it dumps its load of sand, a bulldozer begins to flatten out the fine grains and crushed shells.

In his crisp dark suit, complete with blue checked handkerchief spilling from his breast pocket, Josef Kleindienst is talking about his vision of a millionaire’s playground that will offer luxury across six exclusive islands. A former Austrian police chief inspector, he set up his own property development business in 1998 and moved to Dubai in 2003.

For his The Heart Of Europe project he plans to build a mile-long climate-controlled, open-air boulevard, which will use chilled air exhaled from the surrounding bars, restaurants and malls to shield pedestrians from the extreme summer heat.

For the sceptics, tempted to view The World as a huge exercise in hubris and hot air, Kleindienst affords a rare Teutonic smile: ‘Cold air doesn’t rise.’

The strikingly designed villas, which will generate their own energy with solar panels, will have underwater aquariums as well as their own private beaches, where residents will be able to moor their luxury yachts. Floating bridges will link the islands and residents will also be able to enjoy boutique hotels and an ‘interactive aquarium’.

The 46-year-old businessman and father of four says: ‘We’ve sold 11 of the 20 villas, costing from £1.2 million to £3.9 million. I am aiming to be the first person to live full-time on The World. It will be the perfect place to be.’

By his own admission this would be some achievement as his company came perilously close to going under during the crash. ‘It was very stressful. I had to lay off people who were good friends. I had to tell them, “Guys, you have to find another job,” but they knew there was no other job to go to. For many people the Dubai dream was over.’

He’s bullish about the future, though, and believes that the first stage of the project, involving two of the islands, will be finished within 12 months. He also stresses that, overall, the recession has been good for business, helping drive down his contractors’ prices by up to a third and cleaning many of the spivs and speculators out of Dubai.

‘Before the crisis came along, which no one expected, you had investors speculating with these islands, buying and then selling them on at a profit. It was the Wild East and more a fish market than a property market. Investors got badly burned.’ His faith in the future of Dubai, however, seems premature.

The islands were bought off-plan from Nakheel for between $15 million and $50 million. But since then nothing has happened, with developers reluctant to commit and to forge ahead with their plans, while some question the financial viability of The World itself.

A Live investigation has discovered that one of the largest investors into the project is in serious financial trouble, having filed for protection from its creditors in March. Two British owners are currently in jail in Dubai awaiting trial after being accused of bouncing a multimillion-dollar cheque. Another British company that bought one of the islands has yet to start work, leaving investors to wonder what’s happened to their millions of pounds.

Indeed, the way many investors have seen their money disappear has brought an unwelcome focus on the lack of regulation and transparency surrounding many of The World’s island owners.

The British property barons Safi Qurashi and Mustafa Nagri bought GB island through their company Premier Real Estate Bureau for $64 million. The pair featured on British television and in Hello! magazine, with Qurashi revealing that he drove a Bentley Silver Spur and shared a 70ft luxury yacht with his business partner, who drove a Mercedes S500. The reasons that Qurashi gave for moving to the Middle East were the weather and ‘the high crime rate’ back in the UK.

Speaking last year, Qurashi said they had not yet lined up any celebrities for their island but boasted they had a star-studded client base.

‘We’ve had celebrities who have bought other properties from us in the past, actors, sports people and pop stars, real household names.’

The pair predicted that construction would start in late 2009, with 100 villas going up on the island and prices touching $20 million for the top of the range homes.

‘It’s been said a few times that we’re an “odd couple”, but Mustafa has a very wise head on him,’ said Qurashi. ‘I’ll go off on some crazy idea and he’ll just bring me back down to earth, especially financially. We also trust each other. Our business is based on a simple handshake, there’s no lawyer’s contract.’

Until last year the business was valued at $600 million and they had a roll call of 80 staff. But it seems that like Icarus, London-born Qurashi, the son of a Pakistani immigrant, and Nagri, flew too close to the sun. Both are now being held at Port Rashid police station, close to the heart of old Dubai, after being arrested late last year. They have been accused of trying to bounce a $54 million cheque in relation to a real estate deal. In an interview by telephone, Qurashi has said: ‘We have done nothing wrong. We’re not criminals, we are victims of the system.’

They are not the only people questioning Dubai’s ’system’. Another British owner is Imtiaz Khoda, whose Profile Group bought ‘Thailand’ for $20 million. Khoda had similarly humble origins as a Dell salesman. He pitched up in Dubai in 1997, and was a multi-millionaire within ten years. Along with an Aston Martin and dozens of staff based in one of Dubai’s most exclusive business addresses, Khoda rubbed shoulders with boxing world champion Amir Khan, using him to help launch a business development. In a glossy brochure, Profile lays claim to a ‘land bank… in excess of $1 billion’, with construction having started on a series of luxurious high-rise towers in Dubai’s huge and prestigious Sports City development.

But its landmark development was ‘Jasmine Gardens’ on The World, boasting four-bedroom water villas on stilts and lounges that open up on to the sea. Investors were promised a completion date of 2011 but the work has yet to begin.

Khoda’s group has been besieged by irate British and Irish investors who claim to have lost tens of millions of pounds. Among them is Asim Ahmad, a businessman from Manchester, who invested £200,000 in one of the Sports City towers that featured in Profile’s expensive brochure.

‘I kept on having to chase them because I did not even get the original contract,’ he says. ‘A year later nothing had been built and Profile just disappeared. I have been in touch with quite a few people and we are now going for a joint legal action. Half of those I have been in contact with did not get contracts and those that did have been told that they cannot enforce the contracts because no laws have been broken.

‘I put my money in Dubai because I believed it would be safe there, but I feel conned – they’ve changed the laws to suit themselves.’

Khoda, 38, says: ‘We are not in a position to give the money back. We have done nothing illegal. We have complied with the laws and used the money from investors for construction and consultant-related payments. I do understand investors’ anger but we are in contact with various groups of investors and we are trying to sort things out.’

Profile investors threatening to sue the company have been joined by those who put money into Irish group Larionovo, which merged with Profile, and collapsed in November 2008. It emerged, according to auditors, that the company’s directors Ray Norton and Andrew Brett had allegedly enriched themselves to the tune of €1 million shortly before the collapse by taking out loans.

One investor, who refused to be named, said: ‘I’ve seen projects in Dubai that are little more than pyramid schemes.’

Khoda, however, says his development wasn’t one of them. ‘If we were a pyramid scheme we would hardly get approval from the Dubai authorities.’

German developer Robin Lohmann, who has used Michael Schumacher, Boris Becker and Niki Lauda to promote his projects, is another owner who has been plagued with problems. His company ACI Real Estate is being sued by dozens of investors after several projects were never built. Lohmann was also forced to deny German media reports that he was arrested last year by Dubai police for debts.

Perhaps the most tragic casualty of this saga, however, was John O’Dolan, who committed suicide last year. O’Dolan led the consortium, which included

Norton and Brett, that bought ‘Ireland’ for €28 million in 2007. He hanged himself in February last year shortly after allegations had emerged against his business partners. Receivers had also been appointed to several of his businesses.

But the suspicion remains that the crisis surrounding The World has yet to be fully played out and that still more victims will emerge. Many owners are understood to have defaulted on their staged payments, with Nakheel forced to renegotiate in order to avoid the project unravelling. Few owners are understood to have paid up in full for the islands.

The lack of transparency in Dubai does not help. Nakheel refuses to reveal the names of the owners or even how many owners there are. Many companies that Live has uncovered would appear to be little more than ‘fronts’ for the true owners. Since Nakheel is not a listed company its business aairs remain as opaque as The World itself.

The largest investor in The World, for example, has been Oqyana, which bought 22 islands centred on the Australasian archipelago. But its offices in downtown Dubai were empty when visited by Live and no one had left a forwarding address. All the telephone numbers had ceased to work.

In fact Oqyana is a front for a Kuwaiti company called Investment Dar, which co-owns Aston Martin and also several exclusive addresses on Park Lane in London. Last year Investment Dar shocked investors with news that it needed up to $1 billion in loans. Last month Live discovered that Dar has filed for Kuwait’s equivalent of the American Chapter 11 bankruptcy protection from creditors. The news inevitably raises questions about the Oqyana project.

The future of many other projects is similarly uncertain. Rakesh Chandola, who heads the British-based Salya corporation, questions the economic viability of the entire project, saying, ‘At the moment the economics do not make it feasible.’

Varun Chaudhary, whose Cinnovation group owns Nova Island, agrees, saying, ‘There will be no developments until the market improves. I would expect a minimum of two to three years unless the market miraculously takes an upturn again.’

And there is only a chink of light offered by Kuku Gardner, whose company Opulence Holdings owns ‘Somalia’: ‘It is not definite we will be going ahead but we probably will.’

‘It is the tall poppy syndrome,’ says one Nakheel executive. ‘Yes, there are problems but they are there to solve. You can count the developers who have said they want out on one hand. Yes, the recession has brought issues. Cash is hard to come by but everyone has these issues.’

On ‘Germany’, Kleindienst’s gamble continues. Tons of fresh sand are being dumped on the island, its slopes now rising up to 20m from the shallow Gulf sea bed. The next stage will be vibro-compaction – a large crane stands ready to literally shake the islands so that the sand is sufficiently compact and stable to build on.

Kleindienst admits that the project will only truly take off when The World as a whole reaches fruition and that will only happen when all the developers get moving. ‘When these islands are all developed they will become the most expensive real estate in Dubai,’ he says.

Many will question whether Mr Kleindienst’s gamble will ever pay off. If not, then this could well be the end of The World for Dubai. If that happens then perhaps at least Sheikh Mohammed won’t mind too much, as he continues to sit back and enjoy the peace and quiet and splendid isolation of Greenland, fishing and reflecting on what might have been.

Moody’s said yesterday its concerns over possible contagion from Dubai World, the troubled conglomerate, to DP World, the port operator that Dubai World owns, had been alleviated.

The ratings agency confirmed DP World’s ratings, which were downgraded to Ba1 in December with a review for a possible further downgrade after Dubai World surprised markets by announcing its intention to restructure its debts.

Dubai World, one of the government’s biggest holding companies, last month presented its restructuring proposal on more than $24bn in debt. DP World has been so far “ringfenced” from the broader restructuring, which is focusing on the holding company and development arm Nakheel.

“The recent restructuring proposal for the parent company has shown a renewed public commitment to safeguard healthy subsidiaries of Dubai World, including DP World, from any adverse actions from the parent,” said Philipp Lotter, senior vice-president in Moody’s Corporate Finance Group.

“As a result, Moody’s believes further negative rating actions on DP World should now be contained.”

The ratings agency said the company’s recent financial performance was encouraging and could result in a further ratings upgrade over time.

The announcement will come as a shot in the arm for the Dubai government, which has faced a series of ratings downgrades to state-linked companies such as Dubai World. Concern about the government’s $109bn debt mountain was fuelled by the poorly handled announcement of Dubai World’s restructuring in November.

Creditors have generally welcomed Dubai World’s restructuring proposal. The government has injected $9.5bn into the company, mainly intended to revive the fortunes of subsidiary Nakheel, the property developer, which has been hit hard by the collapse of the real estate market over the last 18 months.

Standard & Poor’s, which downgraded DP World and five other state-linked companies in December, has said it will reassess these ratings in the wake of the Dubai World restructuring proposal.