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Diana T Fritz  08/26/2006 04:55:36 PM  From  DB/Inbox:  Search Results

Cable 
Text:                                                                      
                                                                           
      
UNCLAS        ABU DHABI 02924

SIPDIS
CXABU:
    ACTION: ECON
    INFO:   DCM POL FCS P/M AMB

DISSEMINATION: ECON
CHARGE: PROG

APPROVED: AMB:MJSISON
DRAFTED: ECON:OJOHN
CLEARED: FCD:AKHOCHAFIAN, CGD:JBURNS/PWALL

VZCZCADI764
PP RUEHC RUCPDOC RUEHDE
DE RUEHAD #2924/01 1981328
ZNR UUUUU ZZH
P 171328Z JUL 06
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC PRIORITY 6178
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHDE/AMCONSUL DUBAI 6307

UNCLAS SECTION 01 OF 02 ABU DHABI 002924 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CBA - BEHRENS 
STATE PASS USTR FOR DOUG BELL 
 
E.O. 12958: N/A 
TAGS: EINV ECON AE
SUBJECT: Capital Partners - TECOM Commercial Dispute 
 
Ref: Abu Dhabi 2772 (Notal) 
 
This cable contains business proprietary information. 
 
¶1. (SBU) Summary: Embassy has received several Congressional and 
USTR inquiries in recent weeks over U.S. firm Capital Partners' 
dispute with Dubai's TECOM Investments (a member of Dubai Holding) 
as well as inquiries from former Sec HHS Thompson.  TECOM executive 
Chairman Ahmed bin Byat told Ambassador on July 5 that the key issue 
in the Riverwalk dispute was Capital Partner's October 20, 2005 
non-payment of a required lease payment for the property.  Bin Byat 
complained that Capital Partners were pushing a commercial dispute 
into the political arena and suggested that if Capital Partners 
wanted to pursue the matter further, they would need to take legal 
action.  The UAE-based counsel for Capital Partners/McKinley Reserve 
argued in a separate telcon with Econchief that the fact that TECOM 
sold land that it did not control put TECOM in default from the 
beginning of the contract.  End Summary 
 
¶2. (SBU) On July 5, Ambassador and Econchief met with Ahmed bin 
Byat, the Executive Chairman of TECOM Investments to follow up on 
discussions related to the ongoing commercial dispute between TECOM 
and U.S. company Capital Partners.  At the U.S. company's request, 
Ambassador had raised the dispute with UAE Vice President/Prime 
Minister and Ruler of Dubai Sheikh Mohammed bin Rashid Al-Maktoum on 
July 1.  Embassy and Consulate General officers have previously been 
involved in attempting to resolve this commercial dispute.  Bin Byat 
gave TECOM's position on the dispute and correspondence between 
TECOM and Capital Partners related to the dispute.  On July 9, 
Econchief discussed the meeting with Capital Partners/McKinley 
Reserve's UAE based counsel, David Stockwell. 
 
¶3. (SBU) Bin Byat explained that Capital Partners had failed to make 
a required payment on its lease of the land on October 20, 2005 
despite being given an extension to make a payment.  He provided 
Ambassador with an e-mail exchange showing that the CFO of Capital 
Partners, Robert Sutton, agreed that "all other provisions of the 
Lease and Development Agreement" of June 15 applied with the 
extension to October 20, 2005.  Bin Byat also provided a copy of a 
letter dated October 20 from TECOM to Capital Partners stating that 
TECOM "hereby gives you notice of termination of the Development 
Agreement as your failure to make payment under the terms of the 
Lease is a breach of Clause 23.9 of the Development Agreement which 
states that "TECOM may terminate this Agreement on immediate written 
notice to the Developer where the Developer has failed to pay any 
installment of the Rent due under any of the leases." 
 
¶4. (SBU) Bin Byat explained that Capital Partners, a Dubai Free Zone 
Enterprise, was "kind of vague" on its sources of financial support. 
 TECOM, therefore, had wanted to ensure that Capital Partners could 
make its payments.  Although TECOM had lost trust in Capital 
Partners, he explained, Bin Byat said that TECOM had remained 
willing to work with the U.S. investors backing the project.  In 
fact, he noted, that TECOM had worked to identify alternative 
investment locations and offered the investors a substantial 
discount on any future investment, to match the amount that Capital 
Partners claimed to have invested in Dubai.  He acknowledged that 
these negotiations subsequently broke down.  In a subsequent Telcon 
with Econoff, Stockwell explained that - in the company's view - 
these alternative plots offered were not comparable to the Riverwalk 
site.  Despite that fact, when McKinley Reserve expressed interest 
in two tower blocks that had been presented as opportunities, TECOM 
withdrew them from consideration.  (Note: McKinley Reserve/Capital 
Partners has engaged Dubai Attorney -- and former U.S. Consul 
General -- David Stockwell as a local legal representative). 
 
¶5. (SBU) Bin Byat acknowledged that there was an archeological site 
on the original site Capital Partners was planning to develop, but 
argued that the issue was one of non-payment rather than ownership 
of an archeological site, since TECOM was selling "built up area" 
not land and that TECOM compensated Capital Partners for land with a 
greater built up area.  Stockwell later explained that this was a 
major issue, since it demonstrated that TECOM was in default of the 
agreement from the day of its signature. TECOM, he noted did not 
have ownership of the land that it was providing to Capital 
Partners, and it would be irresponsible for Capital Partners to have 
made an additional payment until this issue had been resolved. 
(Note:  In Charles Mulcahy's October 19 e-mail to CG Dubai 
requesting assistance in securing an extension of the payment date 
for 30-60 days after October 20, he does not mention the 
archeological site noting that "The Capital Partners project in 
Dubai is moving ahead on a positive basis.  Several sales have 
occurred concerning the property, however, representatives of the 
company have experienced difficulty raising the necessary project 
financing, as the current legal structure in Dubai does not provide 
the type of securitization of investment interest customary for U.S. 
investors.  Capital Partners has a major $25 million payment due to 
TECOM on Thursday, October 20, 2005. Because of the inability to use 
customary financing vehicles, payments to TECOM have been based upon 
resources of Capital Partners and various sales involving the 
property. Capital Partners will need an extension of the payment 
date beyond October 20, 2005 for approximately 30-60 days."  He goes 
on to write that "Capital Partners has fulfilled all of its 
obligations concerning the TECOM agreement, however, the sales of 
various parts of the property require some additional time to 
provide the necessary cash flow."  End Note.) 
 
¶6. (SBU) Bin Byat also said that TECOM had "no interest in working 
with this group any more," and that the original parcel of land was 
gone.  He suggested that, should Capital Partners/McKinley Reserve 
wish to pursue this matter further, they would need to take legal 
action. 
 
¶7. (SBU) On July 16, Charles Mulcahy, the Senior Advisor to McKinley 
Reserve, sent bin Byat a letter again proposing to settle the 
dispute without resorting to legal action, and requesting a response 
by August 7.  The substance of the proposal is that: 
-- After the title (ownership) problems have been resolved with the 
various government entities in Dubai, the RiverWalk property would 
be sold by the Government of Dubai/TECOM and MKR/CP at a mutually 
agreeable price and terms. 
 
--  The proceeds of the sale would be distributed 50/50 between the 
Government of Dubai/TECOM and MKR/CP.  MKR/CP is willing to consider 
any reasonable proposal of the Government of Dubai/TECOM 
including a payment below the above referenced 50/50 split. 
 
-- This proposed solution would end the dispute; and, the Government 
of Dubai/TECOM and MKR/CP would both move on to other matters. 
 
¶8. (SBU) Comment: Congen and Embassy will continue to monitor the 
dispute and will remain in contact with the U.S. firm.  In an effort 
to increase foreign investment in the local property market, Dubai 
recently announced plans to set up an escrow account, whereby 
investors' deposits would be placed in escrow and only turned over 
to developers when contractual conditions were met.  It is not clear 
whether this would extend to investors who are also developers, such 
as Capital Partners.  End Comment. 
 
SISON