Dubai World asset base to shield obligations

Dubai: Dubai World, the largest holding company in Dubai, has an asset base worth Dh365.75 billion ($100 billion), whereas its total liabilities stood at Dh217.85 billion ($59 billion) as of December 31, 2008.

Its total revenue reached Dh52 billion by the end of last year.

However, the company has drastically reduced liabilities and debts to $26 billion in a few months, according to the latest statement issued on Tuesday.

"The total value of debt carried by the companies [within the Dubai World Group] subject to the restructuring process amounts to approximately $26 billion, of which approximately $6 billion relates to the Nakheel sukuk," the statement said.

The company last week announced the restructuring of the holding company. It has appointed Moelis & Company to advise on the Dubai World restructuring with Rothschild, who will continue their ongoing role as financial adviser.

The proposed restructuring process will only relate to Dubai World and certain subsidiaries including Nakheel World and Limitless World. The process will not include Infinity World Holding, Istithmar World and Ports and Free Zone World (which includes DP World, Economic Zones World, P&O Ferries and Jebel Ali Free Zone), all of which are on a stable financial footing.

Phases

The restructuring, which will be carried out in an equitable way for the overall benefit of all stakeholders, will comprise several phases including: long term plans and commitment of stakeholders; determination of maintainable profit and cash generation; assessment of deleveraging options, including asset sales; assessment of funding requirements and the formulation of restructuring proposals to financial creditors and their implementation.

"Initial discussions have commenced with the banks of Dubai World and are proceeding on a constructive basis. In light of the current operational challenges and the future obligations of the group, it is anticipated that the process and any related actions to address strategic alternatives will be conducted on an expedited basis. As part of this overall process, Nakheel requests its sukuk holders to appoint an authorised representative with whom discussions can commence," it said.

Analysts say the announcement will have a strong positive impact on the market, especially the banking and financial institutions. "In general, UAE bank capital ratios have strengthened during 2009 as the institutions reduced cash dividends, slowed loan growth, converted federal deposits into Tier 2 capital and in some cases received direct injections of Tier 1 capital from their respective governments," credit rating agency Fitch said.

"If rising impairments over the next six months are largely limited to Dubai World and its related entities, the impact should be manageable for the UAE banking sector."

Abu Dhabi contributes 56 per cent of the UAE GDP, Dubai 32 per cent and the other five emirates the remaining 12 per cent.

Meanwhile, Beltone Fin-ancial Research said: "We believe that the impact of slower growth in Dubai will have less of an impact on overall growth in the UAE, in the present and near future, as oil prices remain at high levels leading to positive growth in Abu Dhabi.

"Abu Dhabi has been less affected, generally, by the aftermath of the global economic and financial crises due to its reliance mainly on hydrocarbon activities and its non-hydrocarbon sectors being less developed and, therefore, less exposed to global conditions."