Dubai World not just a company but a symbol

Some companies come to symbolise their country of origin in a far more fundamental way than by what they produce, or their place of incorporation, or the size of their workforce. General Motors in the USA typified America's dynamic expansion in industrial processes and consumer products in the last century; BP in Britain encapsulated the country's past as an imperial power and global merchant trader; Sony of Japan was the very essence of the country's post-war recovery through sophisticated hi-tech exporting. You could probably add Deutsche Bank of Germany, Fiat of Italy, and (no sniggering now) Guinness of Ireland as examples of corporates that became business symbols, almost ambassadors, of their respective nations.

This is why what is happening at Dubai World is so important to the future of the emirate as it grapples to come to terms with the post-crisis world. "Dubai's flagship in global investments", according to its website, is the beating corporate heart of the emirate, responsible more than any other single company for the way the world views Dubai. Via DP World and the free zones, it encapsulates Dubai's history as a commercial hub and global merchant; in Nakheel, developer of the Palm and World projects, it sums up the "iconic life-style" image Dubai has sold the world; and through Istithmar it has projected Brand Dubai as a world financial player of considerable sophistication and resources. Other divisions, like Limitless and Leisurecorp, symbolise Dubai's ambitions in grand construction projects and the glitzy sport and leisure business.

The rest of the world notices, and cares about, what Dubai World does. When the group bought the QE2 cruise liner and sailed it into the Gulf it generated huge press coverage and TV airtime, depicting not just the arrival of a grand old ship in a new port, but also the transfer of economic power from west to east. So how Dubai World, under chairman Sultan bin Suleyam, handles the problems generated by the world financial crisis will be watched throughout the world, not just by businessmen and investment bankers, but also by ordinary people with their own "mind's eye" image of Dubai.

Last week saw two significant developments in the company's response to the ravages brought on by the global recession. The first was the appointment of AlixPartners, a consultancy firm based in the bombed-out heart of recession-struck America, Detroit. The firm's main claim to fame recently is its role in the restructuring of General Motors, but there is more to it than that. It has specialist expertise in corporate turnaround and financial restructuring, as well as experience in the exhausting legal confrontations such processes inevitably generate. Its appointment is a sign that Dubai World is getting deadly serious about finding radical solutions to the problems it faces.

The first sign of the Alix approach came at the end of the week, with the announcement of a consolidation of most of Dubai World's property businesses under the umbrella of Nakheel. Development and management of property within Dubai Maritime City, Leisurecorp and Dubai Multi-Commodities Centre will come under Nakheel. It is a welcome move, for several reasons. It is another sign that Dubai is abandoning the old management strategy of "dynamic tension" between competing units in the same business sector. This was appropriate in the boom times, but recession requires a different tack. The economies of scale and critical mass such integration brings will serve Dubai World well as it negotiates with the financial institutions who are key to its survival.

There was no mention of the property business Limitless in the announcement, so perhaps the integration process has further to go. The unit's ambitious projects in Dubai and abroad form a significant part of the overall property exposure of Dubai World. Meanwhile, a line in the sand has been clearly drawn by international investors over Dubai World's future strategy. Writing in the Financial Times, Tristan Cooper and Philipp Lotter of Moody's last week pulled no punches in what the rating agency regards as the number one test for Dubai World, and by extension for Dubai Inc - Nakheel's $3.5 billion sukuk, which matures in December.

"Any indication of restructuring or default of this would prompt a rethink of our assumption of timely government support," they say. In other words, if Nakheel does not come up with the cash on time, the international investment community will assume the Dubai government cannot raise it on the international markets, and that Abu Dhabi, which backed the$10bn intervention in February, has declined to participate this time. It gives added urgency to the negotiations over the second $10bn tranche currently being discussed.

These recent developments show that there is a clear strategy emerging within Dubai World to deal with its challenges. Sooner rather than later, that strategy should be explained coherently and in full. The future of Dubai has come to rest with what happens at Dubai World, and that is too important to be left to the guesswork of international investors. [e-mail]