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Sun starting to shine through for Dubai World

When the definitive history of the global financial crisis is written, there should be an honourable mention of the role played by the Japanese shabu-shabu restaurant.

When the definitive history of the global financial crisis is written, there should be an honourable mention of the role played by the Japanese shabu-shabu restaurant. These places, where diners are expected to cook their own food in small boiling pots on their table, figured in the build-up to the crisis when the Japanese financial authorities uncovered a lurid scandal that became known as the "no pan shabu-shabu" affair. Now, shabu-shabu could be a straw in the wind for the recovery of Dubai Inc after the ravages of the past year.

Dubai World, the Government conglomerate that I have described before as the litmus test for Dubai's recovery, yesterday announced some good news from one of its troubled US projects. The CityCentre development in Las Vegas, a joint venture between MGM Mirage of the US and Dubai World's Infinity World Development Corporation, is to hire 12,000 employees to staff up the development, due to open in December.

Among the small army of food and beverage workers to be hired are 12 shabu-shabu cooks to man the Japanese dining facilities in the 27-hectare development on the Vegas "strip". It was a "beacon of hope for a future of renewed economic activity in Las Vegas", a US executive said. Perhaps it will be seen as such a beacon for Dubai World also. The past week has seen the company go on the offensive against the Cassandras who said its US$60 billion (Dh220.37bn) of debt was dragging down the whole of Dubai Inc, and who cast doubts on its ability to meet its obligations.

After allegations in a Bloomberg report that it was having trouble with its Istithmar division that could lead to a fire-sale of assets by the business, Dubai World acted quickly to inject assets from Nakheel, its other debt-laden unit, into Istithmar. These consisted mostly of some or all of the Nakheel international hotel business, which is valued at more than $4bn. That is an intriguing little transaction, raising as many questions as it answers. Dubai World advisers played it down as a small move in the big chess game that is being played out between the company and its creditor banks, but I think there is more to it than that.

Here is one scenario: Nakheel, the developer of the Palm and World projects that have transformed Dubai's coastline but also ravaged its balance sheet, has to come up with about $4bn by December under the terms of its now-infamous sukuk. Transferring those hotels should in theory give it a cash injection amounting to the value of the assets, assuming Istithmar has the cash, or can borrow it using the hotels as collateral, to transfer to its affiliate. In a stroke, Nakheel might just have solved its sukuk problem.

That is a big "might". The alternative scenario is that sukuk holders, fearful about Nakheel's ability to repay them, rise up in protest about the transfer of solid assets from Nakheel and prove much more truculent on the terms of the sukuk repayment. They might be worrying exactly what collateral there is left in Nakheel to back their investment, now the hotels have been removed. The Nakheel-Istithmar asset swap was just one piece of proactive news that came out of Dubai World in the past few days. The hiring of AlixPartners, the US restructuring consultants that advised on the convoluted rescue of General Motors, is clearly having an effect.

The Dubai firm also announced the appointment of a chief executive for the first time. Jamal Majid bin Thaniah will move up to assist Sultan Ahmed bin Sulayem, the chairman who has until now kept the reins of power firmly in his own hands. The executive function is further strengthened by the appointment of a chief operating officer, Maryam Sharaf. These injections of executive expertise can only strengthen the conglomerate, and certainly gave Mr bin Sulayem a spring to his step in a subsequent newspaper interview in which he stated: "The worst for us, and for that matter Dubai, is over. The situation at DW is much better and we are going ahead with most of our programmes."

There is one other reserve that Dubai World must surely consider as it seeks to maximise value. The DP World subsidiary is a sound operating business, with interests across the world in ports and shipping operations. These have been badly affected by the global economic crisis, but all the indicators are that recession is over, especially in the Asian market where DP World is particularly strong. The half-baked plan to sell some of DP World's quoted shares has now been dropped, with Dubai World and Abraaj Capital, the private equity group named as the potential buyer, unable to agree on a price. But there are plenty of other buyers out there, either as trade or strategic investors, who might be interested in a chunk of DP World. It is an option I'm sure AlixPartners and Rothschild, Dubai World's financial advisers, will feel bound to consider.


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