Investors wait on Dubai World data

Tom Gara and Bradley Hope

• Last Updated: November 29. 2009 8:30PM UAE / November 29. 2009 4:30PM GMT

The fallout from Dubai World’s announcement that it would seek a six-month delay in debt payments will dominate trading today, as investors await further information on the situation between the conglomerate and its creditors.

The Central Bank moved to bolster confidence in local lenders late yesterday by pledging to pump extra liquidity into the banking system, but many questions remain over what will happen if Dubai World bondholders reject the proposals being offered by Dubai World.

Dubai World will make a formal request to all its creditors for a six-month debt “standstill” within days, an adviser to the Dubai Government said yesterday.

In his statement on Friday, Sheikh Ahmed bin Saeed, the chairman of the Supreme Fiscal Committee, said “further information would be made available early next week”.

“What is said on Monday [today] will be very important,” said Jan Willem Plantagie, the managing director of Standard & Poor’s Middle East. “We need a lot more information on the time frame for the debt and the restructuring, the terms of the standstill, and what will happen if investors do not accept the proposed terms.

“The real question we have, and that I expect the market to have, is where do they want to go with Dubai World from here; what is the future for this company the other big state-owned entities?” The Dubai Government is expected to make a statement today to clarify the situation, said a source briefed on the strategy.

Investor attention will focus on which local banks are carrying the greatest exposure to Dubai World and whether they will need to make further provisions.

A spokeswoman for First Gulf Bank said reports of the company holding at least Dh5 billion (US$1.36bn) of Dubai World debt were “many times overstated”, but declined to give an accurate estimate of its exposure yesterday.

Creditor banks plan to appoint the auditors KPMG to represent them in talks over recovering their money, the Independent on Sunday newspaper reported yesterday.

The banks include HSBC, Royal Bank of Scotland, Lloyds Banking Group and Standard Chartered, the paper said without citing sources.

Corporate restructuring experts say Dubai World may consider disposing of assets.

“What you want to do is closely examine everything and determine what is going to keep making money and what needs to be sold as soon as possible, even at a loss,” said one executive at a restructuring firm in Dubai. “For a long time it didn’t seem like they were actually restructuring.”

Ittihad newspaper reported yesterday that Dubai World had decided to ask for a debt standstill to avoid a firesale of assets, citing a company official.

The Dubai Government has already said the Jebel Ali Free Zone and DP World, two of Dubai World’s best-performing companies, would not be part of the restructuring. But analysts said one option open to the company would be to sell a stake in these companies to raise cash.

Also under close attention are dozens of foreign assets that include hotels in the US, stakes in global banks and game parks in Africa, which could be sold quickly.

Istithmar World, the investment arm of Dubai World, owns the largest number of these investments. In the past year, Dubai World has consolidated many of its most prized property assets under Nakheel and Istithmar. Earlier this month, Istithmar sold two buildings in London’s West End for a fraction of what it paid for them two years ago.

Dubai World also owns an extensive land bank across the Emirates, but the sharp decline in land and property prices in the past year could make it difficult to sell. Property prices have fallen by as much as 50 per cent across Dubai from their peak.

* additional reporting by Hadeel al Sayegh

tgara@thenational.ae

bhope@thenational.ae