Buried in a Sydney Morning Herald story on the weekend was a disclosure that is bad news for the struggling NSW Government looking for a kick along for its huge Bangaroo property development on the western fringes of the CBD.
The Herald said, in a story about the failure of a newish Sydney ad agency: “The failure by one client, Dubai’s biggest developer, the royal family-backed Nakheel, to pay the agency $1.5 million in fees, escalated the debt. The administrators’ lawyers are looking at what, if any, action can be taken against Nakheel.
“When the agency closed its doors on April 28, 24 staff — down from 55 late last year — were told to collect their belongings and leave, which they did without the previous month’s salary and entitlements. Few, if any, had been aware of the company’s problems, nor of the debts that amounted to $3.4 million, of which $500,000 is owed to staff.”
Nearly half the debt was put down to Nakheel’s failure to pay. Nakheel is headed by former Sydney business man Chris O’Donnell who ran the Investa group here.
Nakheel also has around 10.6% of struggling Sydney based property group, Mirvac, and at one stage was touted as its saviour as Mirvac became trapped in the credit crunch and recession, forcing it to raise cash and cut asset values.
Nakheel is a joint venture partner with Mirvac in a bid to develop Bangaroo. What chance does Nakheel have of developing a huge, multi billion dollar development when it can’t pay a $1.5 million debt in Sydney?
For much of this year Nakheel has been broke, not paying invoices, despite being 53% owned by the Dubai Government, which is in turn controlled by the very rich al-Maktoum family.
Dubai itself is all but broke: the central bank of the United Arab Emirates bailed it out in March when it took up half a $US20 billion five year bond offering launched by the Dubai Government.
A few weeks ago, international media reports said Nakheel itself had been bailed out by the Government by an unspecified amount of money.
“Nakheel, the government-owned developer that built projects such as the Palm Jumeirah Island constructed out of reclaimed land to resemble palm fronds, received funding from the emirate’s $5bn disbursement of funding aiming to help state-linked companies,” the FT reported.
“The announcement sheds light on the way a $10bn bail-out loan to Dubai has been distributed. Dubai, one of seven members of the United Arab Emirates, received the funds from the federal central bank in February.”
“Nakheel, part of the same Dubai World holding group that includes ports operator DP World and investment company Istithmar, initially downplayed the impact of the crisis but has since had to slash staff and postpone landmark projects, including the Trump Tower on Palm Jumeirah.
“The company on Monday confirmed it had received an injection of cash from the government, without revealing the amount, adding that it was restructuring some payment plans with suppliers. Last month, the government said it had loaned $5bn from the $10bn federal loan to help state developers pay outstanding invoices.”
The Trump Tower was one of the two big projects that fell over for Leighton Holdings this year in Dubai (the other was work on the extension of the airport).
If Nakheel and its Sydney mates at Mirvac and Leighton couldn’t see their way clear to paying that $1.5 million debt for the failed Sydney agency the SMH reported on over the weekend, what hope does the NSW Government have of getting money out of them to finance Bangaroo?
Struggling Lend Lease is another Bangaroo contender, but it couldn’t raise enough money to finance the equity it needed for the London Olympics Games Village, so the UK Government is doing that itself and Lend Lease will merely be a contractor.