Checkup time for Dubai Holdings

In the latest twist to emirate's debt saga, the delayed results from DHCOG will provide a financial update on a key company. This will offer an insight into the prospects for its parent, one of the most important parts of Dubai Inc.

The annual financial statement from Dubai Holdings Commercial Operations Group (DHCOG), which is due out today, will provide global investors with a valuable opportunity to assess the state of health of one of the emirate's most important corporate groupings.

It will also provide clues as to the financial condition of its ultimate parent, Dubai Holding. Owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, the conglomerate is a symbol of the spectacular economic success the emirate achieved until engulfed by the fallout from the global financial crisis in 2008. It recently emerged that Dubai Holding has total debts of US$12 billion (Dh44.07bn) and that it had appointed advisers to assist with plans to "explore a range of debt repayment options", in the words of a company source.

Martin Kohlhase, the analyst at the ratings agency Moody's Investors Service, says: "It is an important event because we will see the magnitude of any impairments, which DHCOG has already hinted at. We will also get an indication of the future performance of the group's assets." DHCOG is one arm of Dubai Holding. It controls such significant businesses as the Jumeirah Group of hotels and hospitality operations; the Tecom Investment business parks operation, which runs the internet and media free zones in the city; and Dubai Properties Group, the developer of the Jumeirah Beach Residence and other high-profile property projects in the city.

The other arm of Dubai Holding is the Dubai Holding Investment Group (DHIG), which runs Dubai International Capital. The global investment group hit the headlines last week when it agreed a deal with its bankers to postpone repayment of $2.6bn of debt for three months. The DHIG operation runs the financial and insurance unit Dubai Group, which runs credit card and Islamic banking and financial operations in the UAE and overseas. DHIG also holds the government-controlled stakes in the investment banks EFG-Hermes and Shuaa Capital.

None of the entities within Dubai Holdings is quoted on any stock markets, but DHCOG is assessed by the international ratings agencies because of borrowing facilities. Moody's rates DHCOG's medium-term note programme and a number of foreign exchange drawings or borrowings under that programme, in dollars, yen, sterling and euros, totalling $3.26bn and due for repayment between 2012 and 2017. Dubai Holdings dropped Standard & Poor's earlier this year in a disagreement over transparency.

Moody's, another one of the other large ratings agencies, still issues reports on DHCOG and recently issued a relatively upbeat assessment. There had been fears in global markets that, following the turbulence caused by the restructuring at Dubai World, Dubai Holdings might be the next of the emirate's corporations to go through financial difficulties. There were reports, subsequently confirmed by the company, that it has appointed a set of advisers to examine its capital structure. The three leading accounting firms, Deloitte, KPMG and PricewaterhouseCoopers, and one investment bank, Lazards, were named as advisers to Dubai Holding or its subsidiaries.

Moody's said it was "monitoring the situation and is constantly engaged in discussions with DHCOG, particularly regarding the company's ability to address forthcoming maturities, which include $555m under a facility maturing in July 2010. "DHCOG has confirmed it is currently looking at rolling over this facility and is negotiating commercial terms with the existing banks. The company has confirmed it has other sources of funds to tap into if needed and that it is in continuous engagement with the government on its financial position.

"We have also obtained further assurance from DHCOG that their engagement of an international consultancy firm, which the company has confirmed, is not related to any restructuring of its direct debt obligations, but to the refinement of the group's three year business plan." Nonetheless, Moody's also confirmed that it rated DHCOG at "B1 and under review for downgrade". DHCOG recently filed a statement on NASDAQ Dubai that it was seeking to delay publication of its financial figures for last year, which were due earlier this month.

The last results the company filed was in May last year for 2008. They showed a 29 per cent fall in profits to Dh9.82bn, mainly because of impairment charges to its property business. But the total assets of the group for that year jumped from Dh140bn to Dh171.4bn. DHCOG then said it made Dh10.4bn of provisions on its property portfolio for 2008 and had to reschedule projects "to ensure financial viability and availability of funding resources" as the global economic slowdown hit Dubai's property sector.

Analysts believe the impairments are most likely to come this time in the Dubai Properties Group business. Property sales and rental values fell, by some estimates as much as 40 per cent, last year. The subsidiary's biggest project is the Business Bay development in central Dubai. There is also a potential exposure to property impairment at Tecom Investments, as the economic slowdown has affected demand for its prime rental space.

Experts believe the most resilient of the DHCOG divisions is the Jumeirah hotels and leisure chain. Its operations in Dubai, New York and London are estimated to be achieving good occupancy rates, although room rates have softened. The unit still has an ambitious strategy of international expansion. Dubai Holding's chairman is Mohammed Abdullah al Gargawi, one of the emirate's leading businessmen, who is also Minister of Cabinet Affairs.