DIC to sell off major stakes and extend loan

Dubai International Capital, the private equity arm of Dubai Holding, aims to sell off all its major stakes within five years.

Dubai International Capital (DIC), the private equity arm of Dubai Holding, aims to sell off all its major stakes within five years and has no plans to make new investments as it seeks an extension on repayment of US$1.25 billion (Dh4.59bn) in loans.
"Our first priority is to defend our existing portfolio," David Smoot, the fund's chief investment officer, said on the sidelines of a private equity conference in Abu Dhabi yesterday.
"We will sell within the next five years but there's no rush."
The challenges for DIC have grown in the past year as financial problems cropped up at some of the companies it owns. Its own struggles with maturing debts have only added to the challenge.
DIC amassed a large portfolio of stakes in foreign companies during the boom leading up to the financial crisis including Travelodge, a UK-based discount hotel chain, and the German aluminium producer Almatis.
It also owns Doncasters, a British precision-engineered parts company, and Alliance Medical, a company that provides imaging diagnostics services in the UK.
The fund recently sold its entire stake in Merlin Entertainments, the European theme-parks giant that owns the Madame Tussauds waxworks museums.
It also sold major stakes in Japan's Sony, Europe's aerospace giant EADS and ICICI Bank in India some time ago, Mr Smoot said.
He declined to say whether DIC had made a profit on those transactions, adding: "It has been a difficult market."
DIC is now in talks with banks to restructure a $1.25bn bank loan taken out to finance its purchase of Mauser, an industrial packaging company it bought in June 2007 for ?850 million (Dh4.35bn). Those negotiations were going smoothly, Mr Smoot said, although "any loan can be further extended".
After winning the consent of its banks last month on a second extension of the loan, Mr Smoot indicated DIC would reach an accord with creditors on the issue by the new deadline at the end of next month. "That's my expectation."
Sources familiar with the restructuring talks said recently that DIC's proposed terms - a new five-year loan at 0.75 percentage points above benchmark interest rates - are not looked at favourably by the banks.
Banks are pushing for higher rates of interest and asset sale tests in the second and fourth years of the new loan. Under such tests, creditors could declare DIC in default if it were unable to meet cash-generation targets envisioned in the proposal.
As talks progress, DIC is fighting to prevent creditors of companies in its portfolio from wresting away control.
It recently lost a significant part of its stake in Almatis after a protracted battle with the German company's creditors after Almatis declared bankruptcy in the US.
DIC is to retain a 60 per cent stake in the company under a plan approved last month by a judge to take it out of bankruptcy.
"All our companies are performing strongly in 2010 and we're very pleased to have completed the Almatis restructuring, which was a difficult challenge," Mr Smoot said.
DIC is also trying to stay in control of Alliance Medical, which is in talks with creditors to restructure debt or explore a sale to raise new money and avoid slipping into default on overall debts of about £500m (Dh2.91bn).
Those issues mirror problems faced by major private equity firms everywhere, including in the Middle East. As returns stagnate and financial problems crop up at companies they own, private equity funds in the region are struggling to raise fresh money and continue to invest.
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