VZCZCXRO7062
RR RUEHDE
DE RUEHAD #3127/01 2131316
ZNR UUUUU ZZH
R 011316Z AUG 06
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC 6415
INFO RUCPDOC/USDOC WASHDC
RUEHLB/AMEMBASSY BEIRUT 0501
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 02 ABU DHABI 003127 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR NEA, EB 
 
E.O. 12958: N/A 
TAGS: EINV ETRD ECON EFIN LE AE
 
SUBJECT: TFLE01: STATUS OF UAE INVESTMENT IN LEBANON 
 
Sensitive but unclassified.  Please protect accordingly. 
 
¶1. (SBU) Summary: Prior to the most recent outbreak of hostilities 
in Lebanon, UAE-based companies had an estimated US $2.3 billion 
invested in-country, largely in Beirut's real estate and luxury 
services sectors.  While most UAE-owned properties have not been 
damaged by Israeli air strikes, investors are suffering losses due 
to a damaged infrastructure, labor shortages and lost tourism 
revenue.  Several companies have issued public statements indicating 
their intention to maintain their current level of investment in 
Lebanon despite these losses, but their positions may change as the 
likelihood of an extended conflict increases.  According to an 
official from the Abu Dhabi Investment Authority, the UAE government 
does not possess any significant investments in Lebanon.  End 
Summary. 
 
SCALE OF INVESTMENT 
------------------- 
 
¶2. (U) Foreign direct investment from the Gulf into Lebanon has 
steadily increased since 2001, as Gulf investors acquired surplus 
liquidity from rising oil revenues and looked to Lebanon's growing 
international tourism industry and booming real estate market as 
sources of potential profit.  Media reports estimate that 
approximately 80% of the investment from UAE-based companies was put 
into real estate development, mostly in and around central Beirut. 
Much of the remainder went into tourism-related services such as 
amusement parks, hotels, restaurants and retail space.  As is common 
in the region, investors have frequently united the two ventures 
into "mega-projects" consisting of high-end real estate interspersed 
with commercial spaces to create self-contained communities catering 
to wealthy expatriates and other high-value consumers. 
 
¶3. (U) Several prominent UAE-based firms possess significant 
investment risks in Lebanon, including the following: 
 
--  The Abu Dhabi Investment House announced plans for a US $600 
million "Beirut Gate" commercial and real estate development project 
in March 2006, though construction had not yet begun as of the onset 
of hostilities; 
 
--  Al Futtaim Group reportedly has an estimated US $450 million 
invested in a range of hotels, real estate development projects and 
retail facilities; 
 
-- Al Habtoor Group has several enterprises worth an estimated total 
of US $450 million in Beirut, including the high-end Metropolitan 
Palace Hotel, the recently opened US $150 million Habtoor Grand 
Hotel Convention Center and Spa, and the country's largest amusement 
park, Habtoor Land; 
 
-- DAMAC Properties has an estimated US $150 million invested in "La 
Residence by Ivana Trump," a tower of luxury condominiums under 
development in downtown Beirut; 
 
-- Dubai Islamic Bank has invested up to US $50 million into three 
large real estate projects in various parts of Beirut, with another 
US $200 million allocated for the projects' completion; 
 
-- Emaar Properties has commenced several unspecified projects with 
a total estimated value of US $250 million, including a number of 
retail facilities under its subsidiary Emaar Malls; 
 
-- Reef Real Estate Investment has invested a reported US $20 
million in a number of real estate projects throughout Beirut; 
 
-- Rotana Hotels manages the Gefinor Rotana Hotel in Beirut and the 
Hamzieh Rotana Hotel on the highway from Beirut to Damascus, and 
reportedly had started development on a seaside resort in Raouche; 
 
-- Tamweel, a prominent Dubai-based mortgage lender, is believed to 
have financed a large number of private real estate purchases 
throughout Lebanon. 
 
¶4. (U) Portfolio investment from the Gulf has also bolstered 
Lebanon's stock market in recent years.  While many UAE investors 
were scared away in 2005 by the bourse's instability following Rafiq 
Hariri's assassination, a number were lured back by the market's 
dramatic recovery and superior performance in comparison to other 
emerging markets in the region.  Media reports indicate that 
investment was focused in those publicly traded firms related to the 
country's successful real estate and tourism sectors, particularly 
Solidere, the large real-estate development firm founded by Hariri. 
While the scale of UAE investment is not known in absolute terms, it 
is believed to be a relatively small portion of UAE citizens' total 
overseas portfolio investments. 
 
ABU DHABI 00003127  002 OF 002 
 
 
 
¶5. (SBU) In contrast to the large private-sector ventures, the UAE 
Government does not have any significant investments in Lebanon, 
according to an official from the Abu Dhabi Investment Authority 
(the main investing arm of the emirate of Abu Dhabi).  Additionally, 
officials at the Abu Dhabi-based Arab Monetary Fund (AMF) have 
stated that Lebanon is not heavily in debt to the AMF.  Bashir 
Al-Haskouri, an AMF economist, told Econchief on July 24 that 
Lebanon's total public debt is $35 billion, but only a small portion 
of that is owed to the AMF. 
 
IMPACT OF CONFLICT 
------------------ 
 
¶6. (U) Due to the geographic concentration of UAE real investments 
in and around Central Beirut (particularly the Solidere district), 
none have been significantly damaged by Israeli strikes.  However, 
public statements from several of the companies indicate that the 
hostilities have triggered shortages in supplies and labor due to 
damaged and threatened transportation routes, as well as a sudden 
drop in the country's tourist consumer base.  Consequently most 
UAE-owned facilities have been closed or reduced to a skeleton 
staff, and are currently operating at a loss. 
 
¶7. (U) UAE financial investments have likely been more directly 
affected by the conflict, due to its impact on the Lebanese bourse. 
The market's major BLOM Index slid more than 25 per cent in the 
first five days of the conflict, triggering first a reduction in the 
daily pricing limits of all shares and bonds to 5 per cent and 
finally the closure of the market on July 17.  Particularly hard-hit 
was Solidere, the largest company on the market and a favorite of 
Gulf investors.  Shares of Solidere slid in value by 14 per cent on 
July 13, and had dropped to below US $20 a share for the first time 
in more than a year by the time the market closed. 
 
¶8. (SBU) Thus far, no UAE-based company has announced intentions to 
significantly reduce or withdraw investments from Lebanon due to the 
conflict.  While some corporate representatives (specifically from 
Al Habtoor Group and the Abu Dhabi Investment House) have publicly 
noted the need to monitor the situation closely and reevaluate, many 
(most notably DAMAC Properties) have affirmed their intentions to go 
forward with their investment plans as soon as the hostilities 
cease, noting Lebanon's economic resilience in the face of past 
political turmoil.  This same pattern is apparent among investors 
from across the Gulf and the Arab world. 
 
¶9. (SBU) Comment:  The decision by UAE companies not to withdraw or 
draw down their presence in Lebanon is explicitly based upon the 
assumption that the present hostilities constitute only a short-term 
disruption.  If the possibility of an extended conflict becomes more 
apparent, investors will likely reevaluate their stance and may 
shift their investments away from Lebanon to minimize losses and 
seek financial gain elsewhere.  End comment. 
 
QUINN