Analysts claim state backed property developer owes UK engineering firms £200M.
Leading UK consultants were this week struggling to recover hundreds of millions of pounds in unpaid fees from Middle East clients.
Analysts believe Atkins, Mouchel, Scott Wilson and WSP and other UK firms are owed a total of £200M by Nakheel, the state-backed developer of megaprojects like the Palm Jumeira, World and Universe Islands.
Atkins said last week that it was chasing £25M in unpaid bills in the Middle East. “Cash collection has become more difficult, especially in the Middle East where there has been a worsening of approximately £25M in the past three months. We expect that cash collection will remain challenging for at least the next few months,” it said.
Cash collection has become more difficult
Earlier in the year consultant Mouchel also highlighted payment problems. “Sums due in the Middle East totalled £31.6M of which £23M related to contracts in Dubai, with the vast majority being due from the local state backed development companies.”
Scott Wilson recently announced an exceptional charge of between £4M and £6M caused by unrecovered debts.
WSP has yet to release numbers, but a recent statement said it was making “appropriate and prudent provisions in respect of potential impairment of trade receivables and unbilled amounts due on contracts” in the Middle East.
Nakheel’s mega-projects have helped drive GDP growth of up to 16% per year in Dubai over the last decade. This growth has recently given way to a spectacular crash as the credit crunch hit last year, and analysts now claim Nakheel is teetering on the edge of insolvency. As one insider put it: “The company sells property off-plan at the front to fund construction at the back. Speculators invested heavily in property that created a bubble that has severely overheated as a result.”
As the credit crunch hit last year investment funds dried-up, hitting the developer hard and limiting cash for ongoing projects. “We believe Nakheel is not paying consulting engineers,” said Charles Stanley Securities analyst Geoff Allum. He estimated that the developer owed consultants around £200M in unpaid fees.
The Dubai government recently raised a £13.7bn bond issue, with neighbouring Abu Dhabi buying half. But it is unclear whether Nakheel will benefit from these new funds. Nakheel refused to comment.