Bond offer clears lingering fog

The document Dubai provided for investors about its recent debt offering amounts to a reckoning.

Light can clarify but also blind. The global media's white-hot spotlight on Dubai's finances has distracted more than it has illuminated over the past year. Still, an unobstructed view of the emirate's financial health has been lacking. The prospectus that accompanied Dubai's recent debt offering provides the clearest view yet. "Analysts will look to it as Dubai turning the corner," said Mark Watts, the head of fixed income at the National Bank of Abu Dhabi. "There's a number of things now you can see in the market that point to a positive movement and the bond adds to it."

The document Dubai provided for investors amounts to a reckoning. Arriving at it has not been painless. The prospectus outlines how much money Dubai owes to the consortium that built the Metro; it shows the number of property projects that have been cancelled; it reveals that for many of the projects that were completed, sale prices will not soon recover to the highs of 2007. These facts are there for all to see, but they are still only pieces of a mosaic.

Taken as a whole, the prospectus reveals that the property market and financial services sector will be less integral to the emirate's economy. Dubai's dynamism will instead be tied to retail, global trade, and transportation. This constitutes a re-calibration of expectations in response to the global financial crisis; it is clear that its lessons have not been lost on decision-makers in Dubai. And while this strategy is in a certain sense a retrenchment, it is also a return to the roots of the emirate's historical strengths.

The appetite in global markets for Dubai's debt will help provide an even clearer view of the way forward. Dubai has made a considerable effort to determine which projects can be profitable in the long term and to direct its resources towards their completion. Many of these projects will require additional financing. Without a benchmark for what that would cost, Dubai was without a crucial piece of information. The offering provides a ballpark figure for the price of financing, which will allow Dubai to plan more prudently.

When the global economic crisis arrived in Dubai, anxieties were compounded by a lack of clarity. Dubai's prospectus has helped to disperse any lingering fog.