Dubai Inc may face shakeup after debt standstill

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Dubai's shock move to restructure its biggest corporate debtor, Dubai World, and delay repayment on some of the company's USD59 billion of liabilities could signal a broad restructuring of the emirate's corporate landscape.

A web of government-linked companies, including Dubai World and affiliate Nakheel, has presided over spectacular growth in the emirate's real estate, shipping, transport and financial sectors over the past two decades.

Now part of that constellation of companies could be broken up as Dubai struggles under its massive debt load. In some cases, firms could be dismembered or partially privatised.

John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group, called Dubai's announcement on Wednesday "a huge confidence destroyer...Unless there are clear signals, Nakheel and DW could be in far deeper trouble than before".

"They're announcing that they have two institutions that cannot repay their obligations on time," he said. "It's going to make people more jittery. They will ask more questions about Dubai debt and its repayment processes."

Holding firms
The government said on Wednesday that Dubai World would ask all providers of financing to itself and Nakheel to extend maturities of the debt until at least May 30 next year. That appears to affect about USD5.7 billion of debt due to mature before the end of May.

Dubai World is one of the emirate's three big holding firms, along with Dubai Holding and Investment Corporation of Dubai. In addition to Nakheel, its affiliates include DP World, a huge port operator, and Istithmar, an investment company with a portfolio of over 50 firms in the financial services, consumer, industrial and property sectors.

The restructuring announcement was a shock partly because Dubai World had said last month that a previous restructuring plan, prepared with AlixPartners, the turnaround experts advising on the General Motors bankruptcy, was nearly complete and would save USD800 million over three years.

It was also surprising since Dubai World had previously seemed to be at the core of the government's plans for the emirate.

The government said on Wednesday that it had raised USD5 billion by issuing bonds to two Abu Dhabi-controlled banks; the money will be managed by a Financial Support Fund that will lend to support Dubai's development.

But the government specified that the bond issue was not linked to Dubai World's restructuring and would merely go towards the "general purposes" of the fund, implying it would not be used to bail out Dubai World.

"The Financial Support Fund has obviously not deemed Dubai World to be of immediate strategic importance," said Ian Munro, head of research at MAC Capital Advisors.

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