Once filled with the cacophony of cranes and construction labourers, Dubai today hums to the work of a quieter crowd. The brash Gulf emirate, renowned for extravagant real estate projects and flashy living, has turned into a city of auditors.
As they pore over the detritus of last year's debt crisis, the city-state's accountants and lawyers face a task as huge as Dubai's ambitions. The emirate's flagship firm Dubai World has agreed to repay $25 billion of debt -- borrowings that nearly brought down the emirate's economy.
The auditors' task is to investigate exactly where the money went, who lined whose pockets, and what other financial landmines might lie in store. Forensic audits at state-linked firms, such as Dubai Holding, are part of a wider corruption probe that has targeted senior figures from Dubai's boom years.
But even as the accountants work to get to the bottom of the financial mess, Dubai is changing. Its rescue last year by Abu Dhabi -- details of which Reuters reports here for the first time -- has encouraged the city-state to become more conservative, both politically and socially. Dubai's crisis prompted a shift of power to the rulers in Abu Dhabi, the wealthiest of the seven states that make up the United Arab Emirates.
Now a chastened Dubai is recovering some of its confidence as it seeks to convince international investors it can deliver now where last year it failed.
Questions remain. With Dubai's old guard at the helm rather than the young high-flyers who many blame for the crisis, can Dubai ever achieve the sort of growth it once boasted? Or, given that the economy depends so heavily on trade and tourism, could it be tempted to return to the excesses of the past?
"The Dubai growth model that was talked about so much and propagated in the media -- all that has changed now," says Christian Koch, director of international studies at the Gulf Research Centre. "The crisis forced Dubai to take on a much more realistic approach."
Dubai's credit default swaps:
The shock of Nakheel
Abu Dhabi's ascendancy began in the wake of 2008's global credit crunch. Reports about debt trouble in Dubai's flagship companies had been circulating within government from as early as 2005, though most people seemed happy to ignore them. In 2008, the end of a six-year oil-fuelled boom burst Dubai's real estate bubble while the global financial crisis left the emirate unable to refinance looming debt obligations.
To help Dubai support its state-linked firms, the national central bank, which is based in Abu Dhabi, had bought $10 billion in Dubai bonds in February, 2009. But Dubai, which has little oil of its own and had embarked on a series of massive building projects to promote its trade and tourism, had much bigger problems.
Chief among them was Dubai World, which was struggling to pay its debts. Dubai World's lenders had been quietly rolling over loans since early 2009 and the state-linked company hoped to renegotiate terms, extend maturities and keep paying interest as it worked out a restructuring.
But that plan depended on knowing how much government support the company could obtain. Over the summer and through the Muslim holy month of Ramadan, the state committee set up to support Dubai's corporations was ominously quiet on the matter.
On Nov. 25, when Dubai's liabilities had reached $59 billion, or nearly a quarter of the United Arab Emirates' federal Gross Domestic Product, officials finally sounded the alarm. The definitive story of how the rescue came together may never be written, but Reuters has pieced together some of the key details of those days.
At 6 p.m., as many Emiratis and expats were winding down after work, the Dubai government summoned advisers and senior Dubai World executives to the offices of government lawyers Latham & Watkins. Government officials told the gathering that they had sought a stay of payment on Dubai World's debts.
"No-one had anything to say," says one person who was present. Like most people involved in the rescue, they refused to be identified, either for fear of tarnishing their reputations or because they remain involved in the process and are not authorised to speak publicly.
"The announcement was a disaster for Dubai. They were told 'don't worry, Argentina has done this, Venezuela has done it. People forget and they start lending again.' But what they didn't take into account was that those are real economies. This is not a country.
"Dubai relied on global goodwill, if you will, and that was shattered."
The first repayment to be affected -- a $3.5 billion Islamic bond from Dubai World's real estate company Nakheel -- was due on Dec. 14. But those in the meeting knew the payment was one that Nakheel, a developer of islands shaped like stylised palm trees and a map of the world, would never be able to make.
A former adviser to Dubai World puts it succinctly: "Nakheel was a pyramid scheme, basically. They took money from selling one big project, one palm island, and used it to pay for another."
The silence in that Dubai meeting became the standard setting over the next few days. Despite rumours in the global markets of a looming default, no official came forward to explain the situation until Nov. 30. Financial markets looked to Dec. 14 as a major test; bondholders, including aggressive hedge funds, smelled blood.
There was another option: Abu Dhabi. Officials in Dubai began hammering out a proposal to put to the larger emirate on how to deal with the looming default. On the evening of Dec. 13, the night before the payment was due, they agreed on what the final proposal should say. Crucially, it would not involve a full repayment of the bond.
"Nakheel was a big massive shock," says a source familiar with the restructuring. "Dubai went to Abu Dhabi and said, we have this company called Nakheel that's so messed up it could take our whole economy down, and nobody knew about it.
"Nakheel's books were so screwed up it wasn't even funny."