Dubai Holding delays part of $1.8bn debt repayment

Dubai Holding LLC, a company owned by the emirate’s ruler Sheikh Mohammed Bin Rashid Al Maktoum, is delaying repayment on part of $1.8 billion in loans due this month as state-owned companies seek to restructure liabilities.

Dubai Holding Commercial Operations Group LLC, a real estate and hospitality group owned by Dubai Holding, received a second extension on repayment of a $555 million credit line, the company said in a statement on Tuesday. Dubai International Capital LLC, a unit of Dubai Holding, in May got a three-month extension on a $1.25bn loan until September 30.

Dubai racked up $109.3bn of debt to transform the emirate into a tourism, trade and financial-services hub, according to International Monetary Fund estimates. Dubai World is in talks with about 70 lenders to alter terms on $23.5bn of debt.

“It eases immediate liquidity pressures, and having a long- term solution would be a positive because it would smooth out repayments,” Martin Kohlhase, an analyst at Moody’s Investors Service, said of Dubai Holding Commercial’s announcement. “Dubai World is clearly the more important negotiation because of the size of the debt and number of lenders involved.”

Dubai Holding Commercial said the extension until November 30 is under “commercial terms” and is needed for an accord on a long-term facility.

Dubai Holding owes banks $12bn and has begun talks to roll over some loans, a person with knowledge of the matter said May 10. Almost three-fourths of the loans have been racked up by Dubai Group LLC and Dubai International Capital, said the person. The units own stakes in companies including Bank Islam Malaysia Bhd, Airbus parent European Aeronautic, Defence and Space Co NV and Sony Corp.

Dubai World and its main creditor banks in May agreed to alter terms on $14.4bn of bank loans and $8.9bn of government liabilities to resolve a crisis that roiled global markets last year. Dubai World unit Nakheel PJSC, the builder of palm-shaped islands off the emirate’s coast, said in July a group of its creditor banks supported a plan to alter the terms on $10.5bn of loans and liabilities.

“The fact that Dubai World talks are dragging on indicates that lenders are looking for a higher degree of comfort with the company,” Kohlhase said. “We wouldn’t expect it will be too much longer until they reach a decision, given that negotiations have been taking place since May.”

Dubai World told banks it will sell assets if operating cash flows are insufficient to repay debt, a banker who attended the presentation with Dubai World said on August 25. Dubai World controls DP World Ltd, the world’s fourth-biggest port operator, private-equity firm Istithmar World PJSC, and Economic Zones World. Istithmar bought New York luxury retailer Barneys in 2007 for $942.3m, while Dubai World acquired a $5.1bn stake in US casino company MGM Mirage in 2008.

Dubai’s government borrowed $20bn last year from Abu Dhabi’s government, two of its banks and the United Arab Emirates central bank to help state-owned companies facing problems raising funds because of the financial crisis. Dubai is the second largest of seven UAE emirates and Abu Dhabi the capital and largest emirate.