Dubai World debt repayments rely on continued asset sales

13 March 2014

Lack of transparency over Dubai World repayment progress remains

The servicing of Dubai World’s billions of dollars-worth of restructured debt is dependent on continued asset sales, say market analysts.

Jean-Michel Saliba, a Middle East and North Africa economist at the US’ Bank of America Merrill Lynch, says in a global research note that the conglomerate must push forward with the proposed sale of its 50 per cent stake in the Las Vegas-based casino and entertainment complex CityCenter and the 5.3 per cent stake it holds in the US resort and hospitality company MGM Resorts.

The disposal of these assets will be “broadly sufficient” to meet the group’s 2015 debt deadline when $4.4bn-worth of debt matures, Saliba says.

Dubai World restructured $25bn-worth of debt in 2011 following its request for a standstill on its obligations in 2009, at the height of the global financial crisis. The repayment scheme was divided into two phases, with one tranche due in 2015 and the final repayment of $10bn due in 2018.

Dubai World has sold off several assets since the restructuring. The most recent was the selling of Palm District Cooling, which was owned by Dubai World subsidiary Istithmar World, to Empower in a $500m deal signed in January this year.

The conglomerate also sold the Atlantis, The Palm resort, also owned by Istithmar World to Investment Corporation of Dubai in late 2013.

Other market observers say it is hard to accurately judge whether Dubai World can make its debt deadlines, with or without asset sales.

“Given the lack of transparency, it is very difficult to assess from the outside whether Dubai World has made progress against the original restructuring programme,” Dubai-based Martin Kohlhase, vice-president, senior analyst, corporate finance at the US-headquartered rating agency Moody’s Investors Service, tells MEED.

Montasser Khelifi, senior financial analyst at Dubai-based Quantum Investment Bank, says that in the absence of significant asset sales, Dubai World could consider raising some refinancing through the local bank market, as repaying debt purely through asset sale proceeds could be challenging.

“The local banks are in better shape than at the time when the restructuring took place… so you could see some syndicated facilities,” he says.

It has been widely discussed since the debt restructuring that Dubai World would have to consider selling stakes in strategic assets, such as the port operator DP World and the Jafza economic zone, in order to meet the 2018 debt deadline. The group has a 77 per cent stake in the port operator, which operates Dubai’s Jebel Ali port, as well as several other other ports in the regional and internationally.

Kohlhase says it is doubtful this will be needed. “It is a last-resort option,” he says.

The company’s annual creditor meeting, expected to be held in April, is fast approaching and creditors will be hoping for greater clarity on the company’s repayment plans.

In 2013, there were complaints from the group’s lenders than the asset sell-off was not happening fast enough.

Kohlhase says the economic environment of the past year has been a prime time to sell off assets. “If you want to realise high asset values by monetising assets, then probably the last 12 months has been a good time to do so,” he says.

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