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Mon 17 Jan 2011 09:45 AM

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Dubai World $24.9bn debt deal is ‘template’ for Gulf, says advisor

CEO of Moelis, which advised on debt deal, said Gulf will learn lessons from Dubai cash woes

Dubai World $24.9bn debt deal is ‘template’ for Gulf, says advisor
Dubai World unit Nakheel was at the heart of its parent companys debt woes

Dubai
World’s $24.9bn debt restructuring completed in September serves as a model for
other companies in the region to follow, the chief executive officer of Moelis
& Co, one of the advisors on the deal, said.

It
is "a template for how to get a complicated consensual restructuring
done," Kenneth Moelis said in an interview in Dubai yesterday. "We
are not involved in Dubai Holding but we understand that they are following a
similar model."

Dubai
World, one of the emirate’s three main state-owned holding companies, reached
an agreement with more than 70 creditor banks to delay loan payments after
property prices slumped in the emirate and frozen credit markets prevented it
from raising new loans to repay older ones. Moelis advised the Dubai government
on the Dubai World restructuring.

Since
that deal, other state-related companies in the emirate have reached agreements
on their loans. Dubai Holding Commercial Operations Group extended the maturity
of a $555m loan, while Dubai International Capital had $2.5bn of liabilities
postponed.

The
lessons learned from Dubai World’s debt woes are that companies should improve
transparency, which will help prevent them from taking on too much debt and
avoid using short-term loans to fund longer-term projects, Moelis said.

With
Dubai World, “there was a time when the creditors themselves didn’t understand
who the ultimate obligor is, what the collateral was, and whom and what they
were ultimately lending to,” Moelis said. The borrowings were also undertaken
“based on the assumption that financial markets would continuously be able to
roll over short-term paper.”

Dubai
World will return $4.4 billion of its loans in five years and $10bn in eight
years, and pay below-market interest rates over their lifespan as part of its
restructuring plan.

The
money will be raised by selling assets, which include port operator DP World,
casino company MGM Resorts International and luxury retailer Barneys New York.

“We
are very confident” that eight years is enough time for the value of Dubai
World’s assets to recover, said Augusto Sasso, Moelis’ managing director for
the Middle East and North Africa. “We are already seeing that the trade-related
assets are improving, so DP World’s stocks are double what they were a year
ago. You are seeing the shipping business start to come back, the hospitality
business is just starting to come back. Other sectors are in the low part of
the cycle.”

Dubai
is committed to providing Dubai World with the right management team as is
evident from the formation of a new board in December led by Emirates chairman
Sheikh Ahmed bin Saeed Al Maktoum, Sasso said. Over time, Dubai World will also
appoint a new managing director and a chief financial officer, he said.

New
York-based Moelis, an investment bank set up by Moelis in 2007, has established
an office at the Dubai International Financial Center, and is working on
another large restructuring in the region, Sasso said, without providing
details. It is also working on selling an asset for a sovereign wealth fund in
the region, and helping with the recapitalizing of three portfolio companies
for sovereign wealth funds, he said.

“I
am a long-term believer in Dubai,” Moelis said. “It’s a great location, there
is a tremendous population around it, there is a tremendous amount of trade
that is going to go through it, and they have the first mover advantage within
the Gulf in building a vibrant city that is hard to replace.”

 

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