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Dubai’s Restructuring Gathers Pace With DIC Asset Sale Proposal

Dubai’s effort to resolve its debt woes is gathering pace after Dubai International Capital LLC presented plans to sell assets to repay $2.6 billion.

The company, part of Dubai Holding LLC that is owned by the emirate’s ruler Sheikh Mohammed Bin Rashid Al Maktoum, has proposed to sell assets over five years and sought a second extension until November on the repayment of a $1.25 billion loan, two people familiar with the plan said yesterday.

Dubai Holding is one of three main state-controlled holding companies, alongside Dubai World and Investment Corporation of Dubai. Dubai World said Sept. 10 it got approval from 99 percent of creditors for its $24.9 billion debt plan. The company in November sent emerging market stocks tumbling after it sought to delay loan payments.

The Dubai World restructuring could “serve as a blue-print if that were needed for other Dubai Inc. corporates,” said Martin Kohlhase, an analyst at Moody’s Investors Service in Dubai. “Given the high acceptance rate, it looks as if lenders have taken some degree of comfort.”

Dubai built up $109.3 billion of debt to transform itself into a tourist and trading hub, according to International Monetary Fund estimates. That left some of the emirate’s government-related entities struggling to service debt.

DIC, Dubai Group

Dubai Holding, which holds stakes in companies such as U.K.-based hotel chain Travelodge, Doncasters and Madam Tussauds through DIC and its second investment arm Dubai Group LLC, owes banks about $12 billion, a person familiar with knowledge of the matter said in May. Almost three-fourths of this debt has been racked up by DIC and Dubai Group, the person said.

“Given Dubai Holding’s structure, its restructuring may be more complicated than that of Dubai World, but investors now have a model of what a restructuring could look like,” said Faisal Ghori, principal at Middle East Ventures, a strategy consultancy firm based in Washington, with an office in Dubai.

Dubai Holding has already taken steps to manage its debt. DIC’s request yesterday to extend its $1.25 million loan follows an earlier three-month extension in May until Sept. 30.

Dubai Holding’s property and hospitality arm, Dubai Holding Commercial Operations Group, which includes luxury hotel chain Jumeirah Group LLC and its property units, said Sept. 7 that it was deferring payment -- for the second time -- on a $555 million loan until the end of November.

Selling Stakes

The company is also offloading stakes in some of its strategic investments to raise cash. DIC in June sold its stake in Merlin Entertainments, which is majority owned by Blackstone Group LP, the world’s largest buyout company.

Still, Dubai World and Dubai Holding “are two different cases in terms of the amount of debt outstanding, legal and corporate complexity and the debt maturity profile, although the common denominator of the two is Dubai exposure in general and real estate more specifically,” said Moody’s Kohlhase.

Dubai Holding merged its property units Dubai Properties LLC, Sama Dubai LLC and Tatweer Dubai LLC in August after a near 50 percent drop in property prices in the emirate.

“Dubai Holding bonds don’t mature until 2012, 2014 and 2017, so there isn’t the same urgency” as when Dubai World’s property unit Nakheel PSJC was due to repay an Islamic note, or sukuk, in December 2009, said Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi.

2009 Loss

Dubai Holding Commercial, which in June posted a 2009 loss of 22.8 billion dirhams ($6.21 billion), has debt outstanding of about $4.08 billion, according to JPMorganChase & Co.

Some parts of Dubai Holding’s business may be less problematic than DIC and Dubai Group. The company’s Jumeirah hotel chain has said that occupancy rates at its 11 hotels are strong, despite the economic slump, and it will push ahead with plans to have 60 hotels globally by 2012.

“Cash generation from hotels and rental portfolio, value associated with Jumeirah and telecom stakes should enable the company to refinance near-term debt,” Zafar Nazim, a London- based analyst at JPMorganChase wrote in a June report. The U.S. bank said it doesn’t expect Dubai Holding Commercial to restructure its debt, unlike DIC and Dubai Group.

“Dubai Holding Commercial has meaningful asset values across its various business lines, even when taking into account various distress scenarios,” said Moody’s Kohlhase. This means that expected recoveries to financial creditors is above average, Kohlhase said.

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