A better-than-expected restructuring for Dubai World helps emirate to start again

Dubai, the gaudiest of financial centres, has lived its short existence in the glare of public life. As such, it was inevitable that the default of Dubai World would not only teach the emirate a chastening lesson but provide a singularly public restructuring. However, as Dubai World's workout looks to be reaching some sort of conclusion with the announcement last month that the state-owned conglomerate has reached a deal to restructure £16bn worth of debt, thoughts must now turn to how much damage has been sustained to its reputation and its chances of restoring former glories.

In many ways, the news could have been worse. There is still plenty going for Dubai and the emirate remains the place from which many law firms are choosing to target the rest of the region. It is true that recent years have seen a greater flow of investment from law firms into other markets, but Dubai has a major head start on rival markets and is by far the largest international centre for professional services in the region.

And with good infrastructure and an expat-friendly culture, it is also still the easiest sell when foreign firms are looking to relocate staff. As important, financial institutions are heavily committed there and rival markets in Abu Dhabi, Qatar or Saudi Arabia have so far shown limited enthusiasm for attempting to lure international investment banks away.

There is no question that most locally-based lawyers feel Dubai remains over-lawyered, but confidence and activity levels have also improved substantially compared to six months ago. A ring-round of the market last week found no reports of continued redundancies and even sporadic reports of cautious recruitment among law firms. Restructurings of quasi-government bodies aside, there is plenty of restructuring and litigation to go around, and that looks set to continue as the emirate lags around nine months behind the UK cycle. There are some reports that Islamic and general capital markets are on the verge of reopening, the most optimistic estimation calling six months, though that may be erring on the side of hopeful.

Corporate activity has been seriously hampered due to the lack of available debt. Although there is limited new money around, traditional M&A work is likely to be confined to distressed and disposal work for the foreseeable future, while Sukuk lawyers are hopeful of a return to something like normal service soon.

Probably as important, after initially looking like the local authorities were going to handle the restructuring of Dubai World in a cack-handed style, the process is generally regarded to have gone in a more orderly fashion than first expected. As it turned out, the escalated soap opera of Greece's bulging deficit – and the Eurozone's struggle to respond to the crisis – has ended up providing a surprisingly flattering comparison with Dubai's relatively speedy handling of its own debt problems.

It seems unlikely that Dubai will regain its regional dominance, not only because of its boom and bust but because of the natural evolution of the market that will inevitably see other centres develop in importance. But at least now the emirate has a decent chance to build on more substantial foundations than sand and bling.

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