Dubai: Dubai is girding for weeks of arduous negotiations with creditors over restructuring Dubai World’s debt. According to investment bankers involved in the restructuring discussions, there are unlikely to be any quick sales of Dubai World assets.
For one thing, none of its properties are likely to raise the $4-5 billion (Rs18,480-23,100 crore) needed to satisfy bankers that they are serious about restructuring the $26 billion of debt under discussion.
By contrast, a sale of Dubai’s prized airline, or its aluminium and infrastructure firms—most owned by the Investment Corp. of Dubai, the second of the two state-owned holding companies along with Dubai World—could probably generate enough cash to satisfy bankers and help meet Dubai World’s obligations.
Hard hit: Barneys department store in New York. None of Dubai’s properties including troubled investments such as Barneys are likely to raise money that would satisfy bankers and help meet its obligations. Jin Lee / Bloomberg
But such a move is highly unlikely, since it would mean a serious loss of face for Dubai and its ruler, Sheik Mohammed bin Rashid al-Maktoum, who devised the highly intertwined and, it turns out, high-risk, corporatist model that is Dubai Inc.
Dubai’s latter-day development has been founded on a series of corporate entities that, while controlled by the government of Dubai and its ruler, also assumed the trappings of private sector businesses. Some pursued limited public offerings and, without exception, they borrowed heavily.
“It was all very ambiguous, and deliberately so,” said Jim Krane, author of City of Gold: Dubai and the Dream of Capitalism. “When these companies became too capitalist they were split off from the bureaucracy and became state-run companies with autonomous decision-making and freedom of action.”
As a result, Sheik Mohammed’s guiding hand has been highly visible, operating through three main holding companies: Dubai Holding, a company he controls directly; and Dubai World and the Investment Corp. of Dubai.
For a time, this worked like a charm. But now it is clear that some of the investments have not generated enough cash to service the loans, and local and foreign bankers are unsure where they stand.