The Media Line Staff
Dubai, United Arab Emirates (TML) – Dubai World – the conglomerate that nearly brought the Gulf emirate to its knees a year ago under the weight of massive debt – is beefing up its management credentials as it moves to raise more debt and to restructure by selling off assets, analysts said.
The conglomerate, a quasi-government holding company whose interests span luxury real estate, iconic retailer Barney’s New York and a network of 50 marine terminals around the world, will be chaired by Sheikh Ahmed Bin Saeed Al-Maktoum, the uncle of Dubai’s ruler Sheikh Mohammed Bin Rashid Al-Maktoum and also chairman of Emirates Airline, one of Dubai’s most successful businesses.
“Dubai will need to raise more debt to roll over existing debt, and it will require strong collateral, that collateral being the profitable businesses that the emirates own,” Yazan Abdeen, a Dubai-based fund manager at ING Investment Management (Dubai Ltd.), told The Media Line. “When you have that collateral you need to beef it up with leadership in line with the strategy of focusing on profitable components.”
Dubai is sitting on a debt load estimated to be in excess of $110 billion, which has weighed down on an economy that had been driven by borrowing and real estate development until the global credit crisis struck. Dubai’s economy is still struggling, with economic growth forecast by the International Monetary Fund to be 2.5% this year, the lowest in the Gulf, and trailing projections of 4.1% growth for the Middle East and North Africa Region as a whole, as property values continue falling and credit remains tight.
Dubai World set off the debt crisis when it asked creditors on November 26, 2009 to delay repayments on $24.9 billion of loans. A year later, the company won support from creditors for a $25 billion restructuring plan, marking a major advance in Dubai’s recovery. Dubai’s government hired CIMB Investment Bank Bhd., the world’s top manager of Islamic finance deals, to raise as much as $1.5 billion of securities, Bloomberg News reported on November 24.
Sheikh Ahmed will head up a board dominated by members of Dubai’s Supreme Fiscal Committee (SFC), a body he headed that has overseen the emirate’s efforts to grapple
with the crippling debt run up by Dubai World and others.
“They’re bringing in someone to show that [Dubai World] is a going concern. They are going to try and consolidate and focus revenue-generating segments of the company and try and get it back on its feet,” said Ahmad Alanani, head of Middle East and North Africa fixed income sales at Exotix Ltd.
“This guy has done a spectacular job with Emirates Airline. It’s one of the best companies in the portfolio. Bringing him on is a sort of success story,” Alanani told The Media Line.
Other SFC members to join Dubai World’s board include Mohammed Al-Shaibani, whose many roles include chief executive of its sovereign wealth fund; Ahmed Humaid Al-Tayer, governor of the Dubai International Financial Centre; and Abdulrahman Al-Saleh, director-general of Dubai’s Department of Finance.
The decree naming the new director didn’t outline plans for Dubai World but cited its authority to undertake a restructuring of the company and the purchase and sale of assets. Dubai World has a huge and disparate portfolio of holdings. They include luxury real estate developments built by its Nakheel unit on palm-shaped islands off the Dubai coast and more pedestrian holdings like Loehmann’s, a U.S. discount chain that filed for bankruptcy last month.
In a debt plan obtained earlier this year by the Reuters news agency, Dubai World vowed to sell many of its prized assets over the next eight years to generate as much as $19.4 billion to pay off creditors. It also promised to name a new managing director and chief financial officer, which to date it has not done.
“Everything is potentially up for sale, and I think that will continue to be the case. I don’t think anything is off the table,” said Adbdeen of ING. “The core assets they will try and hold onto as long as possible, but it is probably in their best interest to liquidate out of some of their real estate and tourism assets.”
Dubai’s debt crisis has cost the jobs of many of the executives and officials that led the emirate’s debt-driven growth before 2008.
Nasser Al-Sheikh, the director of Dubai’s Finance Department was forced out of his job in May 2009. The following November, Dubai’s ruler removed Mohammed Al-Gergawi, Sultan Ahmed bin Sulayem and Mohammed Ali Alabbar from the board of Investment Corp. of Dubai, the emirate’s largest holding company. The governor of the Dubai International Financial Center, the emirate’s banking hub, Omar Bin Sulaiman was also removed from his post November 2009.
Sheikh Ahmed replaces Sultan Ahmed Bin Sulayem, who masterminded Dubai World’s expansion The last time Dubai World changed board personnel was just before it announced the debt standstill in 2009, but analysts said they doubted the latest shake-up portends bad news.
“We’ve seen the worst,” said ING’s Abdeen. “I don’t think that a default is in play. I think that now it is just a matter of the terms related to the restructuring, and they are changing the board to create a profile that has a better track record.”
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