Dubai is determined to have its own world-class leisure resort, that seems obvious.
The emirate had advanced plans for a multi-theme and leisure park at Dubailand before the financial crisis stalled that idea. Dubailand might still eventually come to fruition in some form, but now all the attention has shifted a little way to the south to the huge area owned by Meraas, the property developer.
This looks an altogether more serious proposition than Dubailand. For one thing, Meraas is becoming a flag-bearer for Dubai’s planned rapid expansion over the next five years or so, and has the blessing of Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.
And Meraas has also thought hard about how to finance the multibillion development of the resort project. Whereas previous big developments in the emirate were funded mainly by bank lending, corporate debt and off-plan sales, this time Meraas has hired serious advisers to analyse all the options for financing the project.
Goldman Sachs, HSBC and Emirates NBD are said to be on board, and are suggesting an initial public offering as a way of kick-starting the Meraas leisure venture. The IPO could take place before the end of the year on the Dubai Financial Market, it is suggested.
It cannot be overstated how important it is to get this phase of the project right. Just cast an eye over the latest reports from Euro Disney to see the long-term consequences of getting it wrong.
The theme park outside Paris is in need of another €1 billion (Dh4.62bn) from its founder and main shareholder, Walt Disney, in the latest of a series of chronic financial problems that have plagued the venture for almost 25 years.
Euro Disney’s capital structure back then was a recipe for disaster. There was a substantial amount of public equity subscribed on launch, but poor operating performance in the early years virtually wiped out shareholders’ value.
The result was that Euro Disney had to push through a series of debt for equity swaps, share consolidations and restructurings on a regular basis. Even when the visitors came back and it made substantial operating profits in the early part of this century, it had to pay huge amounts of interest.
Some leisure analysts say that Euro Disney’s location was always wrong, with long northern European winters and a rival attraction – Paris – a 45-minute train ride away. Maybe, but these problems were only aggravated by the financial structure.
You might expect Meraas and its top-notch advisers to learn from that lesson, although there isn’t enough information in the public domain yet to say conclusively that they have.
The Meraas resort will be smack- bang in the middle of the UAE, right beside Dubai’s new airport and close enough to Abu Dhabi to lure visitors from the capital, as well as from the rest of the GCC.
Winters will not be a problem, of course, but the designers will have to get it right for summertime visitors too.
Some have called the project a “greenfield” because the resort has no trading record, in fact does not exist; others have called it an “off-plan IPO”.
Neither is strictly accurate. The project has assets in the form of land, and the contracts it is currently in the process of signing. Legoland is already clinched as a partner, but expect some big names from Bollywood and the children’s side of Hollywood to be announced as partners soon. It is a venture in the leisure sector, rather than in cyclical real estate.
It has been suggested that up to 40 per cent will be sold via IPO to raise around Dh2.5bn, but these figures are not set in stone. One lesson from Euro Disney is that a lot of public equity is not always such a good thing.
But let’s not get too hung up on Euro Disney. Many other leisure resorts and theme parks operate successfully around the world, including Disney’s big money earners in Florida and California.
And there’s something about the desert and leisure resorts. Perhaps a better comparison than Euro Disney is Las Vegas. Anybody who had been able to buy a share in the then-unbuilt desert fantasyland in the 1930s would now be very rich indeed.
fkane@thenational.ae
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