Builders weigh cost of Dubai’s debt woes

Concerns are growing in the construction industry about the implications of Dubai World’s debt woes on what were thought to be state-backed contracts.

The extent to which the construction industry is exposed to Dubai’s building market remains unclear, with many companies having completed or already written off contracts. But industry figures are worried that Dubai World’s decision to freeze payments on $26bn of debt, and the government’s statement that it would not then guarantee it, could have repercussions across the region.

“We, like every other construction company working over there, are going to have to rethink our commercial behaviour,” said Philip Dilley, chairman of Arup, the engineering and construction conglomerate.

Industry insiders have warned the experience in Dubai will make many building companies reticent about taking on projects for state-related organisations without an explicit government guarantee.

Many construction companies have sought to minimise the impact of a slowdown in Dubai by increasing their presence in other Gulf markets. Opportunities are emerging in the emirate of Abu Dhabi; in oil rich Saudi Arabia to the east; and Qatar to the north.

“Foreign companies have been keen to scale back their operations in Dubai over the last year and more and more are moving into other parts of the region,” said John Denning of Carillion, a UK-based construction company with 40 years’ experience in the Gulf.

Many South Korean companies were also involved in the building boom – Samsung Engineering and Construction helped build the Burj Dubai, the world’s tallest tower. However, Korean building companies, whose stocks plunged following last week’s announcement by Dubai World, say they now have no outstanding large contracts in Dubai.

Additional reporting by Christian Oliver in Seoul