Dubai World restructuring, no stake sale to Abraaj
Posted on 16 September 2009 with no comments from readers
DP World, the publicly quoted subsidiary of Dubai state-owned conglomerate Dubai World, issued a statement to Nasdaq Dubai yesterday to say it was no longer involved in talks to sell a 15 per cent state to local private equity group Abraaj Capital.
Parent group Dubai World said in May it had been approached about the sale of a minority stake in DP World, and its shares have since rallied from 39 to 48 cents (see: http://arabianmoney.net/2009/05/11/should-dubai-accept-an-offer-for-dp-world-stake/).
Debt mountain
The potential deal appears to have been ditched in favor of a more wide-ranging restructuring of the conglomerate and its debt mountain, reckoned to represent the largest part of Dubai’s debts of more than $90 billion.
In June Dubai World engaged the corporate salvage experts AlixPartners as advisors on how to restructure and refinance its business, and this includes DP World. AlixPartners most recently advised on the successful General Motors bankruptcy proceedings.
What will likely emerge, say bankers, is a very large restructuring and refinancing plan for the whole of Dubai World. But there are formidable problems to achieving this task.
Dubai World embraces Nakheel, the Palm Island property developer whose real estate market has crashed since the credit crunch last September. It has two partly completed Palm islands (see above) and an archipelago of islands forming a map of the world, as well as many other projects in various stages of construction.
At the same time, Dubai World owns 77 per cent of DP World, the highly profitable global port operator whose jewel in the crown is the Jebel Ali port in Dubai.
The $3.5 billion Nakheel bonds that fall due in December are seen as something of a test case for the Dubai Government. But this will likely be a side-show compared to the massive debt restructuring at Dubai World.
Market view
Bankers say that foreign and local banks are going to demand a high price for supporting syndicated loans to refinance Dubai World, and it is uncertain that this can actually be achieved in the current market.
Whether that means the ilk of cash-rich Abraaj Capital have another chance to buy assets from Dubai World remains to be seen. But with Abu Dhabi standing behind the $10 billion bond issue by Dubai earlier this year, there is no doubt in the market that a solution will be found.
The United Arab Emirates is a federal country with close links between the emirates, and Abu Dhabi sits on almost a tenth of the world’s oil and a sovereign wealth fund worth many times the debts of Dubai. Indeed, the UAE is a net creditor nation in a world awash with debt, and the first priority is bound to be its local problems.
