Threads from the Desert

The Dubai Government owns 32% of Emaar which is in a real estate joint venture with an Indian firm. The joint venture filed for a public offering of shares in India, $1 billion, for the second time in two years. The first attempt to raise money by the JV at the market peak in December 2007 met with less investor interest than Lehman shares.

The joint venture proposes to use half the proceeds to repay lenders and the other half to execute its business plan. The lenders to the JV are a representative sample of Indian Public Sector Banks with the largest being the Life Insurance Corp of India.

The auditors certificate from 30 September which expressed an opinion on the health of the JV and the individual firms has been trumped by the default of Dubai World last week.

The Emaar that was at prices before 30 September is not the Emaar that is now at prices expected to decline by at least 20%. And the Indian firm still marinates in litigation that is multiplying by disgruntled sellers of land to the JV that want promised balance payments.

The proposed public offering in India will remain proposed leaving Indian lenders to consider why Indian government officials from the Finance Minister, RBI Governor, to the DEA believe that developments in the desert have been “overblown.”

The Ministers should be encouraged to review the Indian budget line item that indicates $20 of the $45 billion in remittances received in fiscal 2008 from the 4 million Indian workers in the Gulf and West Asia, an amount greater than foreign portfolio and foreign direct investment combined.

The RBI strives to match capital inflows with the current account deficit, roughly 3% of GDP, or $30 billion in a year. These invisible flows, remittances, are the base from which the capital flows start. Lower the base and, well, yes, lower the base.

Indian workers from the UAE on leave for Eid in India were terminated by text message and promised that their four month overdue salary and belongings would be shipped to India which begs the question whether shoes bought in India, transported to the Gulf and returned to India count as an export, import, or remittance.

Maybe the Shipping Corporation of India can bid for the contract