Interpreting Middle East Economic News and Analyzing Market Trends

Dubai World urged to sell more assets to pay creditors

Dubai World, the Dubai government’s prized possession, is not out of the woods yet.  The company which owns DP World, the global ports operator, renegotiated debts and set a new repayment schedule in 2011 after the company ran into liquidity issues.  The company has an upcoming payment of $4.5 billion, which is not due for another two years.  However, some of its creditors are getting nervous at the speed the company is moving at selling assets to be able to meet this payment on time.

 

Dubai World, which invested in property, leisure and other businesses around the world on the emirate’s behalf, triggered Dubai’s debt crisis in 2009 when it warned lenders that it would not be able to make debt repayments. The $25bn restructuring deal signed in 2011 with companies including HSBC, RBS and Abu Dhabi Commercial Bank helped lift the economic cloud over the emirate.

The conglomerate has agreed to sell key assets to meet scheduled debt repayments. But while it has reduced its debt burden with some stake sales, it has yet to raise cash to pay off creditors.

At an annual creditor company meeting last month, some lenders voiced concern that the sales schedule was slipping, two years before the first repayment of some $4.5bn. Some of the roughly 90 banks and hedge funds that own Dubai World’s debt fear that without sales it will not be able to make the payment. It could then seek to negotiate another round of restructuring, which could be more painful for the lenders.

Delaying asset sales might give them more leverage to do force a new round of restructuring, said one banker. “Banks were saying there are still lots of assets to sell to meet the deadline,” said a person who was at the private meeting. “Dubai World, however, said, ‘We know what we want to do.’ ”

The company, which declined to comment, still has two years to sell assets in a process that is being monitored by a creditors’ committee. “Dubai World is behind in terms of the plan for realisation of assets, but they’ve still got two years,” said another creditor.

Dubai’s economy has recovered, recording growth of an estimated 4 per cent in 2012, and the government has launched new real estate projects. As the emirate has become a haven from regional revolutions, some fear Dubai will take its eye off debt repayments.

But a Dubai government official insisted that the conglomerate would repay on time and said they were not looking to restructure the deal again. Dubai World hopes the value of these assets will rise before September 2015, he said. The market had been weak in recent years but with the recovery of valuations, the conglomerate would complete some transactions, he said.

“Now is not the time for restructuring, as long as the market is bullish we will pay on schedule,” he said. “The guarantee means that Dubai must sell these assets at the best price, but there are many ways we can handle the repayment.”

The company also has to meet another $10bn repayment in 2018.

Assets on the block include stakes in the Las Vegas CityCentre casino development, Cirque du Soleil and the Atlantis hotel in Dubai, where the meeting took place, and the Mandarin Oriental hotel in New York.

The government has guaranteed to cover any shortfall in the value of asset sales. The emirate, which owes about $120bn, could raise new debt or sell other assets that recovered some of their value after the financial crisis.

Read the full story from the Financial Times.

 

The creditors are right to push for the company to sell assets now.  The Dubai economy is doing well, local real estate and stock market are doing very well, and the US markets are at record highs.  If now is not a good time to sell when will it be?  One can only wonder if Dubai World management is holding out for an even better time to sell assets.  Waiting longer can easily around and kick them in the butt and then re-negotiating debts (as creditors fear) will be on the table again.  Now is not the time to gamble.