By Ed Attwood
Debt default on Istithmar World’s $427m Adelphi building could lead to asset sale
A debt default on a $427m London property owned by Dubai World could lead to a sale of the building, it was reported Sunday.
The Daily Telegraph said that securitised debt against The Adelphi Building, in the West End of the UK capital, had breached loan-to-value covenants.
The Adelphi Building was bought by Dubai World’s overseas investments subsidiary Istithmar World in 2006.
According to a statement from Indus, the vehicle that issued the notes for the Adelphi debt, $341m is still outstanding against the property.
According to the note, all surplus rent on the property is now being used to pay off the debt, which is due to mature later this year.
“It is understood that a sale of the building is being considered as well as a refinancing,” the report said.
A revaluation of the asset last month put the loan-to-value ratio at 89.48 percent, breaching the covenanted loan-to-value ratio of 80 percent.
In 2009, Barclays, which was brought in to manage the debt, also said that Istithmar was breaching loan-to-value covenants on the building.
In August last year, Istithmar sold the Grand Buildings, a commercial property on Trafalgar Square, to a private Russian investor for around $272m.
The move made a profit for Istithmar, and came as the investment vehicle sought to dispose of assets as part of the debt restructuring for parent company Dubai World.
This is one of the most beautiful Art Deco and no doubt valuable buildings in London and proudly flies a UAE flag, among others. Sad that this imposing statement of former success and unchecked ambition might go under the hammer because the bills haven't been paid. Just along from the newly-blinged Savoy the building is such a symbol of London and all the promise oil money used to have.
At last. Reality is 'kicking' in and Dubai is selling assets to cover its debts. There is NO humiliation in doing this. If the USA can let its biggest banks fail, as it did (By design I should add), there is NO humiliation in Dubai selling assets to cover debt.
Regrettable, yes, but not humiliating. The US is way ahead on that score. With unemployment there running at 20% and families on food stamps running at 25% of the whole US population...Dubai's current woes seem a tad less severe.
Make no mistake, Dubai is in serious trouble financially. You only have to look at the GDP to Debt ratio to see that as fact. However, selling assets to cover debt is the responsible thing to do.
Having said all that...Dubai has massive maturing debt issues in 2011 to deal with that eclipses the issues of 2009/10. Maybe this is the reason for the 'fire' sale.