Dubai Holding up to scrutiny

Debt difficulties at Dubai World have prompted investors to turn their attention to another of the emirate's big conglomerates, Dubai Holding. Best known for signature property developments such as Jumeirah Beach Residence and high-profile investments abroad such as its 2005 purchase of the tourist attraction Madame Tussauds, Dubai Holding is one of three principal vehicles for implementing the emirate's development strategies. Dubai's success last week in raising an additional US$10 billion (Dh36.71bn) from Abu Dhabi to help service debts at the companies it controls appears to have done little to alleviate concerns that Dubai Holding might follow in Dubai World's footsteps and seek a deal with creditors to ease its debt burden. "There's still a lot of uncertainty not only about Dubai World but about Dubai Inc entities in general," said Chavan Bhogaita, the head of credit research at National Bank of Abu Dhabi. The cost of insuring Dubai Holding bonds against default surged in the wake of Dubai World's announcement last month that it would seek a delay in repayments, with analysts at Barclays Capital warning clients that Dubai Holding could be next in line. Prices for those credit-default swaps, which eased somewhat in advance of last week's $10bn relief announcement, have since resumed climbing. A spokesman for Dubai Holding said executives were not immediately available for comment. At the core of investor concerns are the broad similarities in the two companies' investment profiles. Both control some of Dubai's largest property developers and have been reshuffling their management and restructuring their operations in the wake of the downturn in the emirate's property market. Both borrowed heavily in recent years to finance property developments and invest in assets overseas. The similarities end there. Dubai Holding's debt burden is much smaller than Dubai World's. Analysts estimate the group has about $15bn in outstanding debt compared with $36.5bn at Dubai World and its subsidiaries. While Dubai World is owned by the emirate's Government, Dubai Holding manages the personal wealth of Sheikh Mohammed bin Rashid, the Vice President of the UAE and Ruler of Dubai. Perhaps most crucially, Dubai Holding is structured along much different lines. Much of Dubai World's property and investment forays are concentrated at its Nakheel unit, while its port operations remain much less affected and have been excluded from the restructuring talks. Dubai Holding is split into two parts, a property development unit that analysts say remains relatively healthy, Dubai Holding Commercial Operations Group, and a private equity unit, Dubai Holding Investment Group, whose outstanding loans represent more than three quarters of the group's overall debt, according to estimates by Morgan Stanley. With no publicly listed shares and no bonds to warrant analyst coverage, the investment group's ability to service its estimated $11.4bn in debt is relatively unknown. Outlining three scenarios for restructuring Dubai World's debt, Morgan Stanley's report indicated that the investment group was more likely to seek restructuring than DHCOG. Dubai Holding was established in 2004 under one of Sheikh -Mohammed's key lieutenants, Mohammed Abdullah al Gergawi, to co-ordinate management of a slew of developments including the Dubai Investment Group, -TECOM Investments, Dubai -Media City, Dubai Internet City and Dubai Healthcare City. Dubai Holding set up its Commercial Operations Group (DHCOG) in 2006. DHCOG controls Dubai Properties, the company that built the sprawling Jumeirah Beach Residence, as well as Sama Dubai and Tatweer. Dubai Properties is also developing Business Bay, the new commercial district in the shadow of Burj Dubai, the construction of which has continued despite the crisis. DHCOG's units did not need to borrow as heavily to reclaim land for their developments as Nakheel did to build the Palm developments and The World. Partly as a result of being land-based instead of offshore, most DHCOG developments were further along when the crisis hit, meaning its units had managed to sell more of them to third-party developers, avoiding the defaults that hit Nakheel. As a result, analysts say, DHCOG has a lighter debt load and more cash from finished properties coming in to help service it. "The facts at DHCOG don't seem to indicate a near-term necessity for debt restructuring," said Philipp Lotter, a senior credit officer at Moody's Investors Service, a major credit ratings firm. Still, DHCOG launched its own restructuring in February, merging the back-office operations of its property units and has sought support from Dubai's Government in servicing debt and paying bills, the ratings agency Standard & Poor's says. That was just the beginning of a spate of changes at Dubai Holding. The company announced in March that the secretary general of Dubai's Executive Council, Ahmed bin Byat, was replacing Mr al Gergawi as Dubai Holding's chief executive. Mr al Gergawi, who also serves as the UAE Minister of Cabinet Affairs, remains the company's chairman and controls a small stake in Dubai Holding through a company he owns, according to Fitch Ratings. Early last month Mr al Gergawi, along with the Dubai World chairman Sultan bin Sulayem and the Emaar chairman Mohamed Alabbar were moved from the board of the Investment Corporation of Dubai (ICD). DHCOG had announced in June that it was planning to merge with the listed property developer Emaar, which earlier this month announced that it had called the merger off. As a prelude to that consolidation, DHCOG said in August that it would combine its three property firms, Dubai Properties, Sama Dubai, and Tatweer, into one company. Emaar announced earlier this month it had called off the merger. Dubai Holding was in many ways better known for its overseas investments. Its investment group snapped up the British budget hotel chain Travelodge in 2006 and the company that owns Madame Tussauds in 2005. It paid billions of dollars for large stakes in Sony, the Japanese electronics giant, and in EADS, the European aerospace corporation. In the wake of the crisis, changes were in store for the investment group as well, In August, Dubai International Capital appointed Anand Krishnan as its chief executive, replacing Sameer al Ansari. Mr al Ansari was moved to Shuaa Capital, which was acquired by the investment group as part of a settlement with its Dubai Banking Group subsidiary. Then last month, one of Dubai Holding's best-known executives, Soud Ba'alawy, resigned as the chairman of the ICD unit NASDAQ Dubai, saying he planned to focus on his role as executive chairman of Dubai Group, part of the investment group. Dubai World's decision to seek restructuring deals with creditors prompted credit-rating agencies to question their prior assumption that the Government would bail out any government-controlled companies that ran into debt problems. As a result, DHCOG has seen its credit rating cut to below investment grade by all three major agencies. However, analysts remain fairly sanguine about DHCOG's ability to service its immediate debts. Moody's estimates that DHCOG has $3bn in debt coming due in the near term, with the earliest, a $500 million loan in 2011. Most other bonds are spread out beyond 2012, Mr Lotter said. "There are not such pressing needs to meet upcoming maturities," he said. "Their debt maturity profile is stronger." warnold@thenational.ae uharnischfeger@thenational.ae