Assets already owned by Istithmar

Dubai World has retracted a statement last month that it moved hotel and property assets to its investment arm Istithmar World from elsewhere within the conglomerate, saying that Istithmar already owned the assets in question. Dubai World, which has an estimated US$5.5 billion (Dh20.2bn) in debt and another $53.5bn in consolidated liabilities at its various subsidiaries, announced in mid-September that as part of its ongoing restructuring "selected hotel and real estate assets and the management teams related to these assets, primarily in international markets, have been transferred to Istithmar World". The release went on to name four executives from Nakheel, the property developer it controls, who were being transferred to Istithmar World. Among them were Nakheel's chief investment officer and chief financial officer.

In a clarification last week to NASDAQ Dubai citing "conflicting media reports", Dubai World said "the ownership of these assets was and continues to be with IW". The company did not issue a clarification to the media accompanying that statement. John Hobday, an official at Financial Dynamics, a public relations firm representing Dubai World, confirmed the assets in question were already owned by Istithmar World, but had been managed by Nakheel. "That's normal in the hotel industry," he said, of the split between management and ownership.

Still, the confusion over Dubai World's restructuring underscores what analysts and economists say is a worrisome shortage of information on how the Government of Dubai and the three major conglomerates it controls are dealing with the estimated $85bn in debts. "They're not doing themselves any favours with this lack of transparency," said Richard Fox, the head of Middle East sovereign ratings at Fitch Ratings, which last month lowered its ratings on seven UAE banks, as well as Dubai Electricity and Water Authority and Dubai Holding's Commercial Operations Group.

Dubai World is 100 per-cent government-owned, as is the Investment Corporation of Dubai, whereas Dubai Holding's sole shareholder is Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai. So unlike a company listed publicly on a stock market, none has any responsibility to publish financial statements. But international credit markets have assumed the role in Dubai that might otherwise be played by minority shareholders, with prices for Dubai-issued bonds signalling levels of confidence in the emirate's progress.

While prices for Dubai Government bonds and other Dubai-related entities have risen amid growing confidence in the global economy and a surge in demand for assets in emerging markets, investors still rank Dubai as one of the riskiest borrowers in the world. The price of insuring Dubai sovereign bonds is still the sixth-highest in the world, with investors considering it only slightly less likely to default than Iceland, according to rankings of credit-default swaps by the credit information company CMA in London.

Much of the scepticism revolves around the fact that Dubai has not published a detailed accounting of just how much its companies really owe. Following an announcement last November that the total was $80bn, analysts now estimate that figure to have risen as high as $85bn as companies pay down debt and after Dubai's sale in February of $10bn in bonds to the Central Bank to help keep them afloat. Considerable confusion surrounds Dubai World in particular. A disclosure in August by Nakheel that Dubai World had consolidated liabilities of Dh217.8bn raised new questions about whether Dubai Inc would be able to cope with its debts, or whether estimates of how much debt it owed were due for a sharp upward revision.

Analysts responded by pointing out that Dubai World's direct debts amountrf to roughly $5.5bn. The rest of the Dh217.8bn represents bonds, loans and other obligations at its numerous subsidiaries, including Nakheel. It is Nakheel's own $3.5bn Islamic bond, which will require $4.05bn in payments when it matures on December 14, that has seized most attention. Dubai World guaranteed the bond, so if Nakheel is unable to repay it or refinance it, it will be up to Dubai World to make good on the debt.

Dubai World has hired AlixPartners, a restructuring consultancy based in Detroit that is advising on the General Motors bankruptcy. Last month, it appointed its first group chief executive, tapping the head of its DP World ports unit, Jamal bin Thaniah. Mr bin Thaniah oversaw DP World's controversial £3.8bn (Dh22.25bn) purchase in 2006 of the British port operator Peninsular and Oriental Steam Navigation Company.

In an interview last week, Mr bin Thaniah declined to discuss specifics on Dubai World's debt restructuring, but noted that debt was a common issue for big conglomerates. "This crisis is so severe that you need to restructure yourself," he said. "It is no good to believe that a business assumption pre-October 2008 is fine for after that." * with additional reporting by Bradley Hope and Ivan Gale [e-mail]