Exclusive: Dubai World prized assets on sale to cut debt

DUBAI Wed Aug 25, 2010 2:13pm EDT

A general view of the Dubai skyline shows the Burj Khalifa building in this March 25, 2010 file photo. REUTERS/Mohammed Salem

A general view of the Dubai skyline shows the Burj Khalifa building in this March 25, 2010 file photo.

Credit: Reuters/Mohammed Salem

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DUBAI (Reuters) - Dubai World is prepared to sell prized assets including previously ringfenced ports firm DP World in a bid to raise as much as $19.4 billion to repay creditors, a document obtained by Reuters showed.

The document, presented on July 22 to creditors at Dubai's lavish Atlantis Hotel, also revealed that the state-owned conglomerate's debt stood at $39.9 billion, higher than the widely expected mid-$20 billion range.

Dubai World, battling to win creditor support for a restructuring by October 1 in order to start cleaning up its balance sheet, warned a sale of assets right now would generate a maximum of $10.4 billion, according to the document, which was obtained on Wednesday.

"DW (Dubai World) lender recoveries (will be) significantly enhanced if DW is given time to rebuild and realize value over a five to eight year horizon," the document said.

Rami Sidani, head of investment at Schroders Middle East, said the level of debt was "much larger" than anticipated and was surprised key assets were now potentially on the block.

"Now we're talking about almost $20 billion of asset sales. That is negative news. The surprise is that it is talking about the asset sales of Jafza (Jebel Ali Free Zone) and DP World, which have been perceived as strategic assets," he said.

The midpoint of the range that Dubai World expects to raise from selling assets is $17.6 billion, the document showed.

"(That) is pretty ambitious and if DW cannot meet that there is increased likelihood of further support from the Dubai government which could be negative for Dubai sovereign risk," said Okan Akin, corporate debt strategist at RBS in London.

Among the prized assets also slated for sale are stakes in luxury retailer Barney's, the Atlantis Hotel and casino operator MGM Resorts International, within the plan to raise up to $7.6 billion in five years.

The conglomerate also identified Jebel Ali Free Zone and Dubai Maritime City (DMC) and Dry Docks World among "strategic assets" that may yield up to $11.8 billion within eight years.

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. But Aidan Birkett, the officer in charge of its restructuring will remain in place until December.

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.

Market reaction was muted, with the cost of insuring five-year Dubai debt against default (CDS) edging four points higher to 460 basis points, Markit data showed.

BATTLING FOR A DEAL

The Dubai government has agreed to take a hit on its claims against the firm, leaving $14.4 billion in bank debt outstanding that the company said it will be able to repay.

When Dubai World's Birkett held the meeting with creditors last month, a source told Reuters that the conglomerate was ready to use a special tribunal in order to hear disputes over the payment plan if they balk at the terms.

A deal has already been agreed with core lenders representing 60 percent of the loans, but Dubai World needs two-thirds acceptance to be able to take the deal to the tribunal in the event of a rebellion.

As a further incentive to creditors burned by the group's ambitious expansion in boom times, Dubai World is offering bankers a "consent fee" of between $150,000 and $800,000 for agreeing to the proposed plan, the document showed.

The restructuring plans involves repayment over five to eight years, with interest of between 1 percent to 3.5 percent.

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, it said.

The total debt figure of $39.9 billion did not include $11 billion of Istithmar's non-recourse asset level debt and $2 billion of Infinity debt.

Dubai World has previously said its Istithmar World portfolio and Infinity investment were ringfenced from its debt proposal agreed by a core group of bankers in May.

"It is not easy to rebuild confidence (in Dubai) in a short span of time. We need to see more practical steps, new rules and regulations come to the market," said Samer al-Jaouni, general manager of Middle East Financial Brokerage Co.

"Foreign investments have dramatically been affected. I believe by doing more practical steps -- not only comments or promises -- confidence can be really rebuilt."

(Additional reporting by Rachna Uppal, Nicolas Parasie, Martin Dokoupil, Matt Smith and Martina Fuchs in Dubai, Sujata Rao in London; Writing by Dinesh Nair and Shaheen Pasha; Editing by Mark Potter and Reed Stevenson)

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