LEXINGTON, KY - An already nervous American economy reacted quickly just after Thanksgiving to news from the Middle East that state-owned conglomerate Dubai World had asked creditors for a six month delay in making debt payments on tens of billions of dollars in real estate investments. Dubai is in the midst of an extraordinary real estate boom such as the world has never seen. In the U.S., the Dow Jones Industrial average plunged 155 points on news of the Dubai revelation. Asian markets and those in the UK were also impacted. In Kentucky, some began to wonder if Dubai, sometimes called an "oasis of excess" in the United Arab Emirates, was in trouble.
Dubai's ruler, Sheik Mohammed bin Rashid Al-Maktoum, is one of the biggest figures in international thoroughbred racing and breeding including hundreds of thoroughbreds purchased in the Bluegrass State. "I haven't seen any impact so far," said Bob Beck, chief equine attorney for the Lexington law firm of Stites & Harbison and who also chairs the Kentucky Horse Racing Commission. "My understanding is that his investments in the horse business are really a personal investment and not related to the financial status of Dubai."
"Apparently, he has pretty deep pockets. I'm not sure problems in the real estate industry in Dubai will adversely impact him to where he will change his participation in the horse industry," Beck added.
If true, that would be a huge relief for Kentucky where the Sheik, his family and various associates have poured millions of dollars into horse sales, even in tough economic times. In addition to farms and stables he owns in foreign countries, the Sheik purchased Jonabell Farm in Lexington in 2001. But some are asking if the mounting debt situation in Dubai could spread to global credit or commercial real estate markets. If it does, would the Sheik pull back some of his investments, including those involving his equine operations?
Some Kentucky equine observers noted that neither the Sheik nor his representatives bought horses at the recently completed Keeneland sale. But that fact has apparently created no alarm at the track offices. "We didn't read too much into that," said Jay Blanton, Keeneland's director of communications and marketing. Blanton added that every indication he and other Keeneland officials have is that "nothing will change with respect to the Sheik and his involvement with the horse industry, and that's a good thing. The Sheik and his family and associates are passionate about the horse industry and are important players and we have every expectation that nothing about that will change," he said.
Beck is also not alarmed by the nonparticipation of the Sheik in recent sales saying it probably had nothing to do with the economic situation in Dubai. "They have been buying a lot of brood mares and stallions over the last couple of years and are concentrating on breeding them to produce their own winning race horses," Beck said. "There's no public indication that there was any connection."
The Sheik has made only a couple of public comments about Dubai World's debt problems. In October, he accused the media of exaggerating the situation and said market reaction around the world showed a "lack of understanding of what is going on in Dubai," according to a report on the Huffington Post. Questioned by a reporter about Dubai's debt load, the Sheik reportedly said "I assure you we are all right. We are not worried." But more recently at a meeting of international investors, the Sheik had two words for media inquisitors - "shut up."
Beck speculates that if there is a financial problem involving Sheik Mohammed, Kentucky might begin to notice it late in 2010. "When you might see it would be at the yearling sales next September," said Beck. "Between now and then, the only other sale of breeding stock is the January sale and I don't think Sheik Mohammed has been a big participant in that. That involves lower level blood stock. In the spring, you've got the two-year-olds in training sale, but again, he seems more active in the yearling and brood mare markets. I think it may be next September before we can reach any conclusion."
Sheik Mohammad has been the leading horseman in the world over the last decade. He hosts the Dubai World Cup, the world's richest series of horse races. If he did not participate in sales in 2010 or began to sell some of his assets "I do think he could have a significant impact on the (equine) markets here in the U.S. and possibly in England," said Beck "He's been such a big player."
But Beck also acknowledges that it would be personally heartbreaking for the Sheik to scale back his love of horses. "The horse business seems to be a passion with him. I think keeping the operation at its current level or expanding it would be a high priority for them."