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
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
"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
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
"It is about logistics, re-export, retail business, tourism,
services -- that is what we are all about," he said.
For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.