Dubai World, the conglomerate at the centre of the emirate’s debt crisis, has the means to make its first big repayment on time next year and expects to pay off more of its debt ahead of schedule, a top executive said.
Mohammed al-Shaibani, chief executive of sovereign wealth fund Investment Corp of Dubai and a key figure in negotiating the emirate’s debt restructurings in recent years, said Dubai World would be able to meet a $4.4 billion loan maturity in May 2015 and to make some other repayments early.
Quoting sources, Reuters reported earlier this month that state-owned Dubai World had repaid $284.5 million of its debts ahead of schedule. Shaibani confirmed this and said more early repayments were likely to be made.
“Around $280 million has already been paid ahead of maturity, and we will continue to do so,” he said without elaborating.
Dubai World ran into trouble during the emirate’s 2009 property market collapse and had to restructure $25 billion of debt, of which about $14.4 billion was owed to around 90 local and foreign banks, and the remainder to the Dubai government.
The restructuring plan aims to buy time for the prices of Dubai World’s assets to recover, allowing it to raise money for debt repayments through the sale of some assets. The May 2015 maturity is being seen as the first major test of this strategy.
“We have the means to pay off the first tranche of debt maturing in 2015 given the group’s precise and successful asset disposable plan,” Shaibani said.
He spoke to Reuters ahead of an annual meeting of Dubai World’s creditors, which is expected to occur this week, and before top Dubai executives and officials visit London next week for a roadshow with international investors.
The approach of Dubai World’s May 2015 maturity is being closely watched by local and foreign creditor banks which lent the conglomerate billions of dollars before it and other state-linked Dubai firms ran into trouble.
A sharp drop in the yields on Dubai debt in the past six months suggests financial markets believe the strategy will work, but some bankers are not entirely sure.
In the run-up to this week’s creditor meeting, there has been speculation among some bankers that it could discuss a “Plan B” – perhaps some form of refinancing involving Dubai banks – in case the May 2015 maturity is not paid in full.
But Shaibani’s comments to Reuters suggested he saw no need for any further restructuring of the debt.
He did, however, say various “options” would be discussed with creditors, including some affecting another big debt maturity for Dubai World, about $10 billion in 2018.
“We are sitting with lenders to discuss options. We even have some plans for the debt maturing in 2018 that we will discuss with them in due course,” Shaibani said.
Shaibani did not elaborate on proposed plans for the 2018 debt but some bankers have speculated Dubai World could offer to buy back some of it before maturity at a discount, satisfying foreign banks which wanted to remove it from their books.
Dubai World has made over half a dozen asset sales since the crisis. Last December the group sold a 50 percent stake in Miami Beach’s Fontainebleau hotel back to south Florida developer Turnberry. The price was not disclosed, but Dubai World originally paid $375 million for the stake in 2008.
The conglomerate still has a vast array of domestic and international assets, including nearly 80 percent of local ports operator DP World, stakes in MGM Resorts International of the United States and the CityCenter development in Las Vegas, and holdings in financial advisory firm Perella Weinberg and Canadian entertainment group Cirque du Soleil.
Rebounding stock and real estate markets have strengthened Dubai World’s balance sheet. DP World’s market capitalisation, for example, has nearly doubled since 2011 to $14.7 billion.
A report by regional investment bank EFG Hermes last week said most Dubai banks had reclassified their exposure to Dubai World debt to “performing” because of the improved outlook, except Emirates NBD, which was expected to do so soon.
“Strong improvement in asset values and progress on asset sales has eased concerns on (Dubai World’s) ability to repay its liabilities,” EFG said.
However, Bank of America Merrill Lynch analysts said Dubai World’s debt restructuring deal might have been too optimistic about the money it could fetch from international asset sales.
Sales of the MGM Resorts and CityCenter stakes look vital to meet the bulk of the May 2015 debt maturity, while the 2018 repayment will probably require Dubai World to sell at least part of its DP World stake and other assets, BoA calculated.