Mounting debt concerns and pressure from creditors may force Dubai to sell its assets fast, international ratings agency Moody’s reported on Monday.
“After years of international acquisitions, Dubai Inc – the term used to describe the myriad of government-owned companies in Dubai – has started to place some of its performing non-core assets up for sale,” Philipp Lotter, Senior Vice-President at Moody’s Middle East, wrote in the agency’s Weekly Credit Outlook.
The fire-sale of Dubai’s government-related assets is expected to address nearly $100 billion (Dh368bn) of debts, half of which will mature in the next three years, according to Moody’s.
“At the moment, Dubai in general will be hard pressed to avoid the stigma of a distressed asset sale,” the report said.
While the sale process may likely be long, especially when Dubai-linked companies seek to avoid heavy discounts, troubled firms such as Dubai World will be more prone to liquidate their assets immediately in order to settle their dues.
Dubai World, which is currently in the process of restructuring around $22bn of debt mostly tied to its real estate subsidiary Nakheel, has prepared the sale of its shipping business Inchcape Shipping Services through its investment subsidiary Istithmar.
It also has a 2.7 per cent stake in Standard Chartered Bank, 100 per cent in Barney’s New York, 20 per cent in Cirque du Soleil, and 30 per cent in Kerzner International, among others.
Last year, Istithmar sold its international property assets in London, United Kingdom and the “W” Hotel in Manhattan, New York in the US.
Moody’s noted that further major asset sales “will constitute one of the conditions of any amicable restructuring agreement with Dubai World’s creditor banks,” which include major UK banks such as HSBC and Lloyds TSB.
The troubled Dubai world also owns DP World and Jebel Ali Free Zone, which according to Moody’s, could also be sold although the strategic nature of these businesses would make it unlikely to fall into international hands.
“Placing greater legal distance between these generally healthy companies and the ongoing restructuring turmoil of their parent would be beneficial and could lead to stabilisation and potentially medium-term improvement of their credit,” the ratings agency said.
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