Instant View: Dubai World plans asset sales

DUBAI (BestGrowthStock) – Dubai World (DBWLD.UL: ) plans to raise as much as $19.4 billion by selling off prized assets over eight years to pay off creditors burned by its overambitious expansion, according to a document obtained by Reuters on Wednesday.

The state-owned conglomerate told creditors at a July 22 meeting, held at Dubai’s lavish Atlantis Hotel, that its capital structure was inappropriate and needed “urgent” restructuring, according to the document handed out at the meeting.

The following are immediate comments from investors and analysts.

RAMI SIDANI, HEAD OF INVESTMENT, SCHRODERS MIDDLE EAST

“Clearly the size of the debt is much larger. Now we’re talking about almost $20 billion of asset sales, that is negative news. On effectively selling the assets, this includes the portfolio of Istithmar which are up for sale. 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.

“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.”

JOHN SFAKIANAKIS, CHIEF ECONOMIST, BANQUE SAUDI FRANSI, RIYADH

“Markets will not take this well and it will have negative reverberations on the equity side in Dubai but also in Abu Dhabi.

It continues the environment of uncertainty and it has a reputational impact for Dubai in particular that just lingers and I do not think the investor community will take this as an optimistic statement.

There is a lot of debt repayment that has to be made in 2011 and they know this very well, they will have to either start to sell assets at a discount pretty fast and also begin to issue paper at a premium.

This will reflect in higher rates for Dubai and they will have to pay more than prior to the announcement.

All of this does impact the image of the UAE and impacts the confidence that one has more about Dubai itself than anything else.”

SHAKEEL SARWAR, HEAD OF ASSET MANAGEMENT, SICO INVESTMENT BANK IN BAHRAIN.

“It appears Dubai World’s debt is higher than we thought and this will have repercussions for investor confidence — it’s more negative news coming out of the UAE and means investors will continue to stay away from the country’s stock markets.

“Throughout this entire episode, transparency and disclosure have not been as good as investors would have expected — even if Dubai World’s problems were bigger than we thought, the market would have acknowledged an improvement in openness.”

Sarwar 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.

“Global investors have many attractive destinations to choose from and Dubai is competing with these — unlike Kuwait or Saudi Arabia, Dubai relies on foreign investment.

“An assumption that asset prices will double in eight years is not too optimistic, because they have fallen 50 to 60 percent, but if Dubai continues to be non-transparent then the situation will be prolonged.”

STUART CULVERHOUSE, CHIEF ECONOMIST, EXOTIX

“We had estimated a total debt figure of about $27 billion last December, but already knew then that the total external debt is higher. It’s not much of a surprise that it is that high. In terms of their ability to sell the assets, who knows if they will be able to get this amount of money? The impact on the economy is not sure. The normalization of the economy, transparency and the establishment of the debt management will take time. The asset sales, companies and GREs (government-related entities) are not necessarily viable, but it’s a long way to recovery and Abu Dhabi will always be in the background to provide support.”

OKAN AKIN, CORPORATE DEBT STRATEGIST AT RBS IN LONDON

“For me the most important is the deadline of October 1 which will mean the restructuring will be out of the way and the end of this uncertainty will be positive for Dubai markets.

“It shows still the massive challenge that Dubai World has going forward to meet this business plan and second, it once again shows the commitment of the government to provide support to DW and third, it demonstrates their willingness to find a creditor friendly solution.

“The $17.6 billion debt disposal plan is pretty ambitious and if DW cannot meet that there is increased likelihood of further support from Dubai govt which could be negative for Dubai sovereign risk.”

ROBERT MCKINNON, ASAS CAPITAL CHIEF INVESTMENT OFFICER

“I don’t think there will be much market reaction. The market has moved on — it knows Dubai World is a mess and will take time to sort itself out.”

MANOJ KULKARNI, HEAD OF CREDIT RESEARCH AT SJS MARKETS

“Dubai World restructuring is a step in the right direction and should improve risk appetite for the debt of Dubai and Dubai-related entities. We think a formal agreement on the restructuring could trigger a rally in Dubai government debt (DUGB), DP World (DPWDU), Jebel Ali Free Zone (JAFZA), DIFC Investments (DIFCDU) and Dubai Holding (DUBAIH).

“This agreement should pave the way not just for the Dubai government but also Dubai-based banks like Emirates NBD to tap the bond market later this year or early next year and raise capital from international investors.

“We think paying off the Sukuk holders and extending the bank debt and compensating the trade creditors has struck the right balance between various creditor classes.”

SAMER AL-JAOUNI, GENERAL MANAGER OF MIDDLE EAST FINANCIAL BROKERAGE CO.

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

“I presume the market will look into this restructuring in analytical terms and see how the creditors will be dealing with new management. It seems things are going ahead. The overall debt figure in general is within the acceptable and the expected. Regarding asset sales, it’s something that is related to the global economy.”

(Reporting by Nicolas Parasie, Matt Smith, Sujata Rao-Coverley, Martin Dokoupil and Martina Fuchs; Editing by Mark Potter)

Instant View: Dubai World plans asset sales