Dubai: Dubai World believes it can raise as much as $19.4 billion from selling key assets over eight years, or almost double the current price, if creditors back its restructuring, a document obtained by Reuters showed.
The struggling state-owned conglomerate, which needs to get creditors to agree to its proposal by 1 October in order to go forward with the plan and clean up its balance sheet, thinks sales right now would generate a maximum of $10.4 billion, according to the document, which was obtained on Wednesday.
As a further incentive to creditors burnt by the group’s ambitious expansion in boom times, it is offering bankers a “consent fee” of between $150,000 and $800,000 for agreeing to the proposed plan.
The plan, presented on 22 July to creditors at Dubai’s lavish Atlantis Hotel, details of which were also obtained by Reuters, stressed Dubai World’s capital structure was inappropriate and needed “urgent” restructuring. Total debt stood at $39.9 billion as of end-2009.
“DW (Dubai World) lender recoveries (will be) significantly enhanced if DW is given time to rebuild and realize value over a five to eight year horizon,” the document said.
Within the range of the money Dubai World said it may raise, it pegged a mid-point of $17.6 billion.
“The $17.6 billion debt disposal plan is pretty ambitious and if DW cannot meet that there is increased likelihood of further support from the Dubai government which could be negative for Dubai sovereign risk,” said Okan Akin, corporate debt strategist at RBS in London.
Among the prized assets slated for sale are stakes in luxury retailer Barney’s, the Atlantis Hotel and casino operator MGM Resorts International, within the plan to raise up to $7.6 billion in five years.
The conglomerate identified ports operator DP World, Jebel Ali Free Zone and Dubai Maritime City (DMC) and Dry Docks World as its “strategic assets” which may generate up to $11.8 billion in the next eight years.
In a sign of the deep overhaul that Dubai World has committed to, the company will appoint a new managing director and chief financial officer.
However, Aidan Birkett, the officer-in-charge of its restructuring will remain in place until December.
The document also showed Dubai developer Nakheel has $10.9 billion of bank debt and will receive key assets from parent company Dubai World after separation.
Market reaction was muted, with the cost of insuring five-year Dubai debt against default (CDS) edging four points higher to 460 basis points, Markit data showed.
Dubai World’s restructuring plans involves repayment over five to eight years, with interest of between 1% to 3.5%.
The Dubai government has agreed to take a hit on its claims against the firm, leaving $14.4 billion in bank debt outstanding that the company said it will be able to repay.
Dubai World’s private equity arm, Istithmar which owns most of the overseas assets, is expected to raise a maximum of $4.5 billion over a five year period. A short-term disposal plan will generate as much as $2 billion, it said.
The total debt figure of $39.9 billion did not include $11 billion of Istithmar’s non-recourse asset level debt and $2 billion of Infinity debt.
Dubai World has previously said its Istithmar World portfolio and Infinity investment were ringfenced from its debt proposal agreed by a core group of bankers in May.