Credit crunch fallout hits Dubailand

31 October 2008
Bawadi delays work on Asia Asia hotel, while Tatweer theme park tender raises concerns over risk.

Landmark Dubailand developments are being hit by the fallout from the credit crisis, which is forcing work on the world’s largest hotel to be delayed by one year, and raising doubts over the level of interest in a contract for the Universal Studios theme park.

Sources involved in the Asia Asia hotel project tell MEED that the ongoing global financial crisis is forcing the client, Bawadi, to suspend the start of work on the scheme by 12 months. Bawadi had been preparing to appoint a contractor for construction work.

The 6,500-room hotel, which will be the world’s largest, was scheduled to open in 2010, forming the centrepiece of the AED200bn ($54bn) Bawadi development.

Representatives of Bawadi were not available to comment on the delays on the hotel, which was originally designed to feature replicas of Asian landmarks such as the Burj Dubai, Hong Kong’s Bank of China building, Shanghai’s Oriental Pearl TV tower and Taiwan’s Taipei 101 building. The design has since been substantially revised.

UK-based Mace International is the project manager for the hotel and US-based Pelli Clarke Pelli Architects is the architect.

Contractors are also expressing doubts over bidding for a Dubailand construction contract at the AED4.6bn Universal Studios theme park, as the contract proposed by the client, Tatweer, would leave contractors shouldering most of the risk. Tatweer, which is part of Dubai Holding and the parent company of Bawadi, has structured the contract to reduce the level of capital it needs to spend initially on the theme park, which was also due to open in 2010.

Contractors are being invited to bid for the contract to design, build and lease the back-of-house buildings, which include administration buildings and warehouses.

According to documents seen by MEED, the contract will be structured so that the design and build works will be funded by the contractor, and the buildings leased to Tatweer once completed.

This approach allows the client to proceed with a minimal commitment of capital as it will be able to pay for the buildings from the theme park’s revenues once it opens. It also reduces the level of debt required by the client at a time when banks are not interested in financing real estate projects.

However, it is not clear if Tatweer will be able to attract contractors to bid for such a contract.

“In theory, it is a smart move because it gives the client access to off-balance-sheet funding,” says one contractor. “The question is, will contractors be interested? Possibly, but I doubt back-of-house facilities will gain much interest.”

“This model was used extensively 10 years ago in the UK when the government wanted the private sector to fund its projects,” says another UK-based contractor. “With the banking system the way it is, I am not sure contractors could take something like that on.”

US-based Parsons Brinckerhoff is the project manager.

The developments follow a decision by local developer Nakheel to scale back dredging works on the Palm Deira project (MEED 24:10:08).

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications