Business

Barneys in talks over huge debt load

Luxury US retailer Barneys, controlled by Dubai's Istithmar World, is in talks with lenders as it tries to manages its debts.

Rebecca Bundhun

10 February, 2012

Barneys New York, a luxury retailer owned by Dubai World, is in discussions with lenders as it strives to manage a huge debt pile.

Barneys said it was engaged in discussions with the company's small group of lenders to improve its balance sheet and further position itself for sustainable, long-term growth and success.

"We are focused on resolving this matter as expeditiously as possible, and it will remain business as usual at Barneys New York," the company said in a statement.

Istithmar, an investment arm of Dubai World, bought Barneys for US$942.3 million (Dh3.4 billion) in 2007. Istithmar declined to comment on the latest developments.

Barneys has approached a bankruptcy and restructuring law firm in the past couple of weeks, according to The Wall Street Journal.

The newspaper added that the law firm also helped companies to fix their balance sheets, so a restructuring or bankruptcy filing was not necessarily imminent, particularly considering that the chain had reported improvements in sales and earnings.

A report issued by Moody's last summer described Barneys's capital structure as "unsustainable".

"The already high debt burden continues to grow due to steep payment-in-kind interest accrual on the mezzanine notes," the report stated.

"In September 2012, the notes' interest will convert to cash-pay, adding about $35m to Barneys' annual cash needs. Additionally, the asset-based revolver matures in September 2012."

This is not Istithmar's only retail asset to have faced trouble.

Loehmann's, the US department store chain also owned by Istithmar, emerged from bankruptcy last March.

The chain, based in New York with 40 stores across the US, eliminated $110m of long-term bond debt and $14m of related annual interest through its restructuring.

Istithmar bought Loehmann's in 2006 for $300m as Dubai World's investment arm built up a portfolio of assets at the peak of the market with large amounts of debt.

Istithmar also bought the luxury liner Queen Elizabeth 2,for $100m from Cunard in 2007. It also took a 20 per cent stake in Cirque du Soleil. Istithmar bought a 73 per cent stake in the Mandarin Oriental in New York for $340m in 2007 and the W Hotel Union Square for $285m in 2006.

The W Hotel was sold in a foreclosure auction in December 2009 for just $2m.

[ rbundhun@thenational.ae ]

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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