UPDATE: Dubai Holding to restructure with haircuts, fresh funds

State-owned company will receive state cash, banks expected to 'chip in' says Mohammed Al Shaibani
UPDATE: Dubai Holding to restructure with haircuts, fresh funds
Sheikh Zayed Road
By Reuters
Tue 16 Nov 2010 05:00 PM

The restructuring of Dubai

Holding is under way and will include a haircut for

creditors and injections of fresh government funds, the vice

chairman of Dubai's top fiscal body told the Financial Times.

Mohammed Al Shaibani, who is also director of the Dubai

ruler's court, told the FT in an interview that the government

had so far pumped $2bn into the conglomerate, which is

owned by the Gulf emirate's ruler.

A year ago, Dubai's other flagship state-owned conglomerate,

Dubai World, shocked global markets when it asked for

a standstill agreement on $26bn worth of debt.

The group reached a restructuring agreement in September,

but investors are still worried about debt troubles at Dubai's

network of state-linked firms.

Seventy percent of the banks involved were the same as those

in the Dubai World restructuring process, Shaibani said. Dubai

World's bank creditors included HSBC, Lloyds,

Standard Chartered and Abu Dhabi Commercial Bank.

Last week, the cost of insuring Dubai sovereign debt against

default or restructuring rose to a two-month high after news

that Dubai Holding financial services unit Dubai Group missed

two payments on separate loans in recent weeks.

Shaibani said Dubai Holding's problems were "not the size"

of Dubai World's, but that its restructuring process was under

way, led by Dubai's supreme finance committee.

Analysts have put Dubai Holding's total debt at between $12bn and $15bn.

Asked if the restructuring process for Dubai Holding would

include injections of fresh funds and banks accepting haircuts

on their loans, Shaibani told the FT:

"It is always like this, yes. The basic scenario, everybody

has to chip in, everybody has to contribute, keeping in mind the

long-term relationship."

Andre Andrijanovs, an analyst at Exotix, said indications

that $2bn had been pumped into Dubai Holding were "a good

sign", but it was likely the sum had been fed in over time and

it was unclear which entity had benefited.

Aside from Dubai Group, Dubai Holding includes private

equity firm Dubai International Capital and real estate group

Dubai Holding Commercial Operations Group (DHCOG), which are

also being restructured.

"Two billion dollars is not such a big number - [real

estate developer] Nakheel alone got about $8bn in new

funds to pay down sukuks and with trade creditors," said

Andrijanovs.

"DHCOG also has significant development projects

that had to be restarted and unpaid bills with trade creditors

... so even if the funds had gone there alone, the numbers

aren't that big."

One source involved in the separate restructuring of Dubai

World also speculated that fresh funds might have gone to

kickstart real estate projects, saying it would be surprising if

$2bn  had been injected to simply service debt.

"Even Dubai World wasn't burning money at that rate - it had funds going in to keep the lights on and pay interest, but

this is a much bigger number," the source said.

Dubai Holding was not available for comment.

Shaibani said banks could expect to win advisory deals as

the government considered future asset sales and privatisations.

"Priority will definitely go to banks that have been very

supportive - we are very loyal customers," he said. "A lot of

the Dubai-based companies are performing really well; it is only

the international exposure that was giving us a bit of a

challenge."

Shaibani said Dubai, one of seven members of the United Arab

Emirates federation, still faced many challenges in terms of

tackling its debt and recovering from the financial turmoil that

has engulfed the Gulf tourism and trade hub since 2008.

"There are still a lot of challenges ... Each time we say ...

it is over, something comes up, whether it is government issues

or company-related issues," he said.

He said the specific Dubai government debt stood at a total

of between $36bn and $38bn.

"And a lot of these debts are operational debts. People do

not realise this. Some of these debts, for example, are

infrastructure debt," he said.

Total liabilities, including those held through other

entities, are estimated by analysts to be over $100 billion.

Shaibani said most of Dubai's companies would be able to

service and repay their debts: "When you break it down to

individual companies it is doable ... These companies are more

than capable of handling their debt situation."

A $1.25bn Dubai bond issue in September marked the

emirate's return to debt markets since its November 2009 crisis.

The four times oversubscribed issue challenged predictions that

Dubai would have trouble tapping credit markets as the emirate

and its companies climbed out of their debt hole.

Asset sales would not take place for several years, if at

all, he said. As part of plans to raise funds, Dubai World

is prepared to sell off some of its prized assets,

including firms such as DP World, over eight years,

according to a document seen by Reuters.

"The Dubai World strategy that was agreed and was supported

by 100 percent of the banks was based on a five-year and eight-
year plan. Because they [creditors] realise that it is not

logical for me to sell assets today," he said.

"So we are selling assets in five years, if I need to sell

assets, but I hope I do not need to sell assets by then."

Asked if Dubai would sell assets or float the companies,

Shaibani said: "Yes. Privatise maybe."

Dubai could even sell stakes in companies such as Dubai

Electricity & Water Authority (DEWA), Emirates

Airline and Dubai Aluminium Company Limited (Dubal).

"A lot of people are looking forward to the government, one

day, to unlock value. I own everything I mentioned today 100

percent. I do not need to own 100 percent of DEWA, or Emirates

airline or Dubal."

In the future, he said Dubai should stick to what it does

best.

"It is about logistics, re-export, retail business, tourism,

services -- that is what we are all about," he said.

 

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