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Thu 23 Dec 2010 10:12 AM

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Dubai asset sales pick up as $20bn debt comes calling

Dubai has signalled it may be open to the sale of some of its most valuable assets

Dubai asset sales pick up as $20bn debt comes calling
DUBAI ASSETS: Among Dubai’s most prized domestic assets are Emirates Airline, hotel operator Jumeirah Group, Dubai Maritime City and Jebel Ali Free Zone
Dubai asset sales pick up as $20bn debt comes calling
Jebel Ali Free Zone (JAFZA)
Dubai asset sales pick up as $20bn debt comes calling
Emirates Airlines chief executive officer Sheikh Ahmed bin Saeed Al Maktoum. The airline is one of Dubais most prized assets

Sales of Dubai’s holdings are gaining momentum a year after the emirate’s corporate flagship shook world markets with plans to freeze payments on $24.9bn in loans.

DP World, the port operator, agreed on Wednesday to sell 75 percent of its Australian unit, raising $1.5bn. Borse Dubai Ltd, which controls Dubai’s two stock exchanges, raised $672m December 16 by selling about half its stake in Nasdaq OMX Group,owner of the second-largest US equity exchange. Both companies said they will use the proceeds to pay down debt.

Dubai and its state-controlled companies have until now been able to renegotiate with creditors. Some $20bn in debt and interest is due next year, according to Egyptian investment bank EFG Hermes Holding, raising the question whether Dubai will be forced to sell overseas assets such as luxury retailer Barneys New York, US hotel and casino group MGM Mirage and Canadian entertainment company Cirque du Soleil, all amassed during the boom years.

“Dubai has been rather successful at bargaining hard for significant haircuts from major creditors,” said Gabriel Sterne, an emerging market economist at brokerage Exotix Holdings in London.

“Such bargaining needs some indication they are cutting their coat according to their cloth, which is hardly credible if at the same time they turn up dripping in superfluous costume jewelry, which is what the non-core assets have come to represent.”

Dubai has signalled it may be open to the sale of some of its most valuable assets with Sheikh Ahmed Bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee and the new chairman of Dubai World, saying November 28 that Dubai may sell stakes in some of its “leading” companies to help reduce debt.

Among Dubai’s most prized domestic assets are Emirates Airline, hotel operator Jumeirah Group, Dubai Maritime City and Jebel Ali Free Zone.

“There has been an evolution in the official discourse, which has led to a very pragmatic and realistic approach,” said Standard Chartered senior economist Philippe Dauba-Pantanacce. “All options are now on the table and this bodes well for the medium-term resolution of the debt overhang.”

Barclays Capital estimated in September that Dubai and its government-owned entities have about $112bn in debt - representing more than 140 percent of the country’s gross domestic product - that was amassed during years of growth in the property and tourism industries.

Dubai World, one of the emirate’s three main state-owned holding companies, got creditors to agree to new terms on $24.9bn of debt in October. Its Nakheel property unit is working on a similar deal for at least $10.5bn in debt. Dubai International Capital, an investment company owned by Dubai’s ruler, extended a $2bn loan for six years and a $500m loan for four years, it said December 17.

“Dubai Inc certainly needs cash,” said Fahd Iqbal, director of research at EFG Hermes. “But the need for cash has, as yet, not been pressing enough for Dubai Inc to consider spinning off valuable, core, domestic assets at low prevailing multiples.”

The cost of protecting the emirate’s debt against default fell to 427 basis points on December 21, its lowest level since Nov. 11, according to prices provided by CMA DataVision. That is down from a peak of 651 basis points on Feb. 15. A basis point equals $1,000 annually on a contract protecting $10m of debt.

Dubai government debt, excluding that of state-controlled companies, stands at $30bn, Mohammed Ibrahim Al Shaibani, director-general of the Dubai ruler’s court and chief executive officer of the Investment Corp of Dubai, said November 28. He said, however, that there would be no fire sale of assets.

“There is no plan to sell assets in any other region,” DP World Chairman Sultan Ahmed Bin Sulayem said on a conference call yesterday explaining the sale of its Australian unit to Citi Infrastructure Investors, a unit of Citigroup.

“This is purely an opportunity to better manage our money” and to use it in higher-margin markets of South Asia, Africa and South America, he said.

The sale of Dubai’s stake in Nasdaq shows the difficulty it is under in recouping its investments. Borse Dubai bought shares in Nasdaq OMX at an indicative implied price of $41.01 a share in 2007, according to a statement at the time, and sold about half of them last week for 47 percent lower at $21.82 a share.

Dubai’s holdings have already sparked interest from some of the world’s largest buyout firms. Carlyle Group, the second- biggest private-equity company, and other buyout firms have evaluated purchasing assets owned by Dubai, the Washington-based company’s co-founder David Rubenstein said on October 26.

“Dubai has built up a strong portfolio of companies with a global footprint,” said Rami Sidani, head of investments for Schroders in the Middle East. “Emirates Airline is the most interesting and valuable company Dubai has and that would attract huge interest. There are also companies such as Dubai Airports, Dubai Duty Free and the Jumeirah Group that are great assets.”

Dubai World and Dubai International have both briefed creditors on possible asset sales.

Dubai World may raise as much as $19.4bn in eight years by selling assets, a person with knowledge of the matter said August 25. If it sold those assets immediately it would probably get $10.4bn, the person said at the time.

Dubai International, part of Dubai Holding, presented a plan to creditors to sell assets over five years to repay its debts, two people with knowledge of the plan said September 15. The company has already sold stakes in Sony Corp, European Aeronautic Defence & Space Co and India’s ICICI Bank  in recent years, despite poor market conditions. In June, it sold its stake in Merlin Entertainments, which is majority owned by Blackstone Group, the world’s largest buyout firm.

Dubai International still owns stakes in companies such as UK medical-imaging firm Alliance Medical and British hotel chain Travelodge Hotels, according to its website.

“Dubai has in its business model a certain number of activities that are not only extremely successful, for some they are of world-class reach and expertise,” said Standard Chartered’s Dauba-Pantanacce. “Investor interest could only be very high in the selling of some of these assets.”


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