DW ups commitment with asset sales plan

By Abdul Basit  www.khaleejtimes.com

As part of its commitment to repay its creditors, Dubai World (DW) plans to raise as much as $19.4 billion by disposing of some assets over a period of eight years, and seeks an agreement by October 1.

The state-owned company is currently $39.9 billion in debt, and is selling stakes in retail stores, MGM Resorts International, DP World, Dubai Maritime City, Dry Docks World etc, according to a document obtained by Reuters. Dubai Word, which seeks to get creditors to agree to its proposal by October 1 in order to go forward with the plan, thinks sales right now would generate a maximum of $10.4 billion,

The document also showed Dubai developer Nakheel has $10.9 billion of bank debt and will receive key assets from parent company Dubai World after separation.

The government will pump $7.3 billion of new equity and equitise a further $5.3 billion of claims to recapitalise Nakheel, Reuters quoted the document as saying.

The Dubai World plan, presented on July 22 to creditors, details of which were also obtained by Reuters, stressed the company’s capital structure was inappropriate and needed “urgent” restructuring.

The proposed plan attracted mixed response from investors and analysts as some of them were sceptical, but others believed that these are valuable assets and likely to get the target prices.

“In terms of generating these amounts from the asset sales, this makes sense and we believe that these assets are very valuable…and the amount they can generate is reasonable,” Rami Sidani, Head of Investment, Schroders Middle East, said.

Shakeel Sarwar, Head of Asset Management, Sico Investment Bank in Bahrain, said Dubai World’s projection that asset valuations could nearly double in eight years was feasible, providing the emirate improved transparency, which will be crucial to attracting foreign money.

“An assumption that asset prices will double in eight years is not too optimistic, because they have fallen 50 to 60 per cent,” Sarwar said.

Dubai World is also providing an incentive to creditors by offering bankers a “consent fee” of between $150,000 and $800,000 for agreeing to the proposed plan by October 1.

Dubai World’s private equity arm, Istithmar which owns most of the overseas assets, is expected to raise a maximum of $4.5 billion over a five year period. A short-term disposal plan will generate as much as $2 billion, Reuters quoted the document as saying.

“DW [Dubai World] lender recoveries [will be] significantly enhanced if DW is given time to rebuild and realise value over a five to eight year horizon,” Reuters quoted the document as saying.

Within the range of the money Dubai World said it may raise, it pegged a mid-point of $17.6 billion.

“The $17.6 billion debt disposal plan is pretty ambitious and if DW cannot meet that there is increased likelihood of further support from the Dubai government,” said Okan Akin, corporate debt strategist at RBS in London.

In a sign of the deep overhaul that Dubai World has committed to, the company will appoint a new managing director and chief financial officer, Reuters said. However, Aidan Birkett, the officer-in-charge of its restructuring will remain in place until December.

“Certain assets and businesses required for Nakheel’s business plan will be transferred from Dubai World Group to Nakheel,” the document said.

Assets to be transferred are Nakheel Harbour & Tower land, land at its Waterfront development which forms the security for the 2011 sukuk (an Islamic bond), Dubai World’s 50 per cent stake in its Al Mamzar joint venture, Dubai World’s 99 per cent stake in Nakheel Leisure LLC, Coastal Communities Distribution FZE and Retailcorp Entertainment FZE, according to the document.

abdulbasit@khaleejtimes.com