x Abu Dhabi, UAETuesday 23 January 2018

Dubai World in major new revamp

Emirate moves to take direct control of conglomerate; also reveals it has lined up $5billion in financing with Abu Dhabi banks.

Dubai's efforts to stabilise its economy took several turns yesterday, with the emirate receiving new support from banks in neighbouring Abu Dhabi and then moving to take direct control of Dubai World and seek a delay in payments of the company's debts.

The emirate said yesterday it had lined up US$5 billion (Dh18.35bn) in financing from the National Bank of Abu Dhabi and Al Hilal Bank, both of which are controlled by one of Abu Dhabi's largest sovereign wealth funds, the Abu Dhabi Investment Council. The two banks agreed to buy $1bn in Dubai bonds immediately, and purchase the remaining debt over the next year. Later in the day, Dubai announced that it had appointed a London-based accountant to take over the restructuring efforts at Dubai World, the Government-owned conglomerate, and would ask creditors of Dubai World and its property developer Nakheel to agree to delays in repayment of debts.

Both moves appeared to be the latest chapter in a process that started in February this year, when Dubai sold $10bn in bonds to the Central Bank to help companies it controls make debt payments and pay contractors. To oversee how those funds were disbursed, Dubai in July set up the Dubai Financial Support Fund (DFSF). Bankers at the time said the DFSF would drive hard bargains, obliging needy companies to submit new business plans that would demonstrate their ability to boost profitability and repay any funds the DFSF lent them. When Dubai sold bonds to foreign investors last month, it confirmed that the DFSF had the right to step in to companies borrowing its money.

Dubai World hired the firm that advised General Motors on its restructuring, Alix Partners, and in October announced a reorganisation that would shed 12,000 jobs and save $800m over three years. The DFSF's decision to appoint its own man to restructure Dubai World appeared to indicate that more needed to be done. The Government said Dubai World's new chief restructuring officer would work with existing management.

The Government's decision to intervene at Dubai World is only the latest in a series of shake-ups bankers say is designed to demonstrate that Dubai and the companies it controls are charting a more prudent economic course. Last week, Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, removed three key lieutenants from the board of the Investment Corporation of Dubai, which controls key companies such as Emirates Airline.

He then replaced the governor of the Dubai International Financial Centre, the linchpin of Dubai's efforts to become a global financial hub. Wednesday also saw the surprise resignation of one of Dubai's most prominent money managers, Soud Ba'alawy, from his positions on government-controlled Nasdaq Dubai. In a statement, Mr Ba'alawy said he was stepping down to focus on his role as the executive chairman of Dubai Group, an investment vehicle of Dubai Holding, which manages the personal wealth of Sheikh Mohammed.

The price of Dubai bonds was affected as investors digested the news, which was released on the eve of the Eid holiday. Nakheel has $4.02bn in bond payments due on December 14, and repayment has been widely expected. Non-payment could raise borrowing costs across the Gulf and many investors expected Dubai and the federal Government to make sure it was paid on time. Dubai's latest $5bn in fundraising appears to be only half of a second $10bn it hoped to raise by the year's end. The emirate last month announced plans to sell an additional $6.5bn to private investors. It has so far managed to raise $1.93bn of that.