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Dubai steps up asset sales to cut debt pile
Dubai, facing debt repayments of about $50 billion over the next three years, is finally getting serious about selling off assets to raise money - a key component of its repayment strategy.
Most investors are now confident that the freewheeling emirate will recover from its 2009-2010 crisis, when a property crash nearly forced state-linked companies to default on billions of dollars of debt.
But until recently, most of the big companies had not followed through on their plans to sell assets as part of debt restructuring deals with creditors. This left a question mark over exactly where Dubai Inc would find the money it needed.
In the last few weeks, however, several asset sales have been announced and there has been progress towards more - a sign that the emirate is able to make some of the tough commercial decisions required by the restructuring plans.
Instability in the global debt markets during this period has blocked any further rally in Dubai debt prices, but they may gain support from news of the asset disposals.
“The fact that concrete action is being taken, and being managed with relatively little visible turbulence, is seen as a positive by the investment community,” said Biswajit Dasgupta, head of treasury and trading at Abu Dhabi asset manager Invest AD.
“The debt burden will come down as a result of these. But equally, there is a sense of greater discipline going forward in that projects will be subjected to more rigorous scrutiny for commercial viability.”
Dubai’s state-linked conglomerates snapped up a spectacular array of assets around the world, from stakes in high-profile companies to real estate, before the global financial crisis of 2008 triggered a crash in the emirate’s property market.
Many firms restructured their debt by extending maturities while promising full repayment through asset sales. Chief among these was Dubai World, which in a $25 billion restructuring deal signed in March 2011, set a two-tranche repayment schedule with lenders over five and eight years.
The plan depends heavily on asset disposals to raise money; it envisioned the conglomerate raising $1.3-$2.3 billion in this way by 2012. That did not happen and until last month, Dubai World had not actually sold any major assets - a source of some worry to its bankers.
Many bankers believed Dubai, hoping to fetch higher prices, was waiting for the global economy to recover further from its crisis before selling assets. This strategy could backfire if the recovery did not materialise.
Some worried that Dubai managers might simply be unwilling to let go of their prize assets, for fear of booking losses on those bought at the top of the market; in that case, their stubborness could jeopardise the restructuring programmes. Others feared Dubai’s partial recovery from its property slump might have lulled it into a false sense of complacency.
But since last month, several actions have suggested such fears are misplaced. A unit of Toronto-based investment firm Brookfield Asset Management bought logistics warehouse developer Gazeley from Dubai World subsidiary Economic Zones World (EZW), the Canadian firm said.
Dubai World had purchased Gazeley from Wal-Mart Stores in 2008 for an estimated 300 to 400 million pounds ($453-604 million). The price of the sale to Brookfield was not disclosed, but falls in asset prices since 2008 mean the sale may have occurred at a lower price.
Proceeds from the sale of Gazeley are expected to go towards the repayment of a $1.2 billion loan secured by Dubai World affiliate JAFZA in June last year. EZW had pledged up to $300 million for JAFZA from proceeds raised by the Gazeley sale, and the funds will be used to part-repay the bank facility, according to a company prospectus.
Meanwhile Dubai Group, a unit of Dubai Holding which is restructuring $10 billion in debt, sold its credit card business to Abu Dhabi’s First Gulf Bank for $164 million last month.
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