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Dubai's $5 billion punt on Las Vegas looks like an increasingly risky bet. This week a government investment firm began suing its American partner, as the economic downturn bites at the blackjack table.
Here's the story. Back in the summer of 2007, state-owned Dubai World and MGM Mirage signed a joint venture to develop CityCenter, a sprawling casino and hotel project in the heart of the Las Vegas strip. In broad terms, Dubai stumped up $2.7 billion towards the cost of the project, and bought a 10% stake in MGM. The deal raised eyebrows at the time in Muslim Dubai, where gambling is banned. Events may be proving the sceptics right.
First, those MGM shares, which Dubai bought at $84. This week they're trading at little more than $3. Even in a vicious bull market, that's a steep decline.
Then there's the project itself. In a recent filing to stock-market regulators, MGM said: "There is substantial doubt about our ability to continue as a going concern." Dubai World says this admission is a breach of the Vegas joint venture and it's asking a Delaware court effectively to tear up the 2007 deal.
What went wrong? The recession didn't help MGM, slashing hotel room rates and the value of its property portfolio just as banks pulled back on lending. Dubai says MGM "mismanaged" the project, making matters worse by driving up costs.
While it's not explicitly clear what Dubai wants, it seems committed to finishing the Vegas development. "Ultimately, Dubai World continues to believe that the CityCenter project has enormous value and will eventually reap tremendous benefits for the Las Vegas community and its investors," reads a statement on the company website.
Maybe that makes commercial sense. Or maybe, like so many who have been lured by the bright lights of Vegas in the past, Dubai is trying win back its losses with one last throw of the dice.
* The Gulf Arab states have officially delayed the creation of a single currency, which was due to launch next year. An official from the six-member Gulf Co-operation Council announced the delay this week, which came as little surprise. Oman had already pulled out, while the remaining five members had not even agreed a venue for a combined central bank.
* Abu Dhabi continues to flex its financial muscles on the world stage. This week it paid $2.7 billion for a 9% stake in German car market Daimler.
