Dubai World asset sale nears, debt talks plod

State-owned conglomerate Dubai World, which is restructuring some USD22 billion in debt repayments, has yet to arrive at a formal standstill agreement with its creditors.

The company rocked global markets on Nov. 25 with plans to request a delay on repaying USD26 billion in debt linked to its main property units Nakheel and Limitless World.

Dubai World -- which staved off default on a USD4.1 billion Islamic bond linked to Nakheel after a last-minute bailout from Abu Dhabi -- is working on a more specific restructuring plan, having already initiated moves to downsize at Group level.

In June last year, Dubai World hired AlixPartners, turnaround experts advising on General Motors' bankruptcy, to help restructure the group. The firm said in October it had cut 12,000 jobs, or 15 percent of its global workforce.

Here are some key scenarios which could unfold in the coming days and weeks.

DE FACTO STANDSTILL
A formal standstill agreement with Dubai World's 97 creditors may never materialise as long as the conglomerate keeps servicing interest payments and presents a concise restructuring plan by the end of April.

The biggest looming deadline is May 13, 2010 -- the maturity date for a USD980 million Nakheel Islamic bond, or sukuk.

An unofficial coordinating committee of seven banks, believed to carry the most exposure, is in negotiations with the company on a regular basis but progress has been slow partly due to the complexity of the situation.

Although Dubai World did not publicly state a timeframe for requesting a standstill from creditor banks, a December meeting with lenders suggested something would be forthcoming in January.

Any possible standstill request is expected to ask creditors to delay bond and loan repayments for a specified period while Dubai World comes up with a detailed plan for restructuring its debt pile, initially expected by the end of April.

However, the addition of Bank of Tokyo-Mitsubishi to the informal creditors committee in January -- the seventh bank to join -- is one of the reasons for a delay.

The lack of information provided to guide investors has also contributed to the unease, bankers say.

"Dubai World is a complete black box and mystery," said a Gulf-based banker at a major international bank. "It doesn't appear there's been any progress."

ASSET SALES
Dubai World will need to offload assets to help meet pending debt obligations. The company has already ring-fenced prized possessions such as DP World and luxury hotelier Jumeirah Group.

The first asset to hit the auction block will likely be Inchcape Shipping Services (ISS), one of the world's biggest marine management firms, which was already been prepared for sale prior to the Nov. 25 announcement.

Dubai World's private equity arm Istithmar World bought the company for USD285 million in 2006 from London-based private equity fund, Electra Investment Trust.

A private equity firm is the most likely buyer for the unit, which has some 200 offices globally.

Istithmar World is among the units Dubai World has said will not be part of the restructuring.

"From Dubai World's standpoint, they've got debt obligations coming due over the coming years and they've got to sell assets to meet them," said Khuram Maqsood, managing director of Emirates Capital.

"I think they're keen on finding cash wherever they can."

Other possible sales could include units from Dubai World's troubled property subsidiaries Nakheel and Limitless.

Some of the high profile international assets held by Istithmar World could also go, following on from the sale at auction of W Hotel in Manhattan and two buildings owned by Istithmar in London in late 2009.

Istithmar World bought U.S. luxury retail chain Barneys for USD942 million in 2007. Barneys hired restructuring advisory firm Perella Weinberg last August to help it mull options that would shore up its financial position.

The move came amid speculation Istithmar is freezing investments as part of a restructuring that may result in its sale or a sale of assets.