Dubai World must make right choices as clock ticks down

There is a clock ticking at Dubai World. The alarm will not sound for a long time, but the ticking is remorseless and is concentrating minds at the government-owned conglomerate and in the emirate's banking community.
DW faces a deadline of September 2015 to repay the first chunk of debts, amounting to US$4.5 billion, that were restructured in the 2010 settlement with creditors. A much bigger amount, some $10bn, must be repaid by 2018, but that is sufficiently medium-term to be off the radar for the time being.
It is the 2015 repayment that is the focus for DW, and for creditors. The company gave a progress report to bankers at a meeting a few weeks back, and there was some concern that it had fallen behind schedule.
The worry was that DW had not yet repaid any of the agreed sum, and there was no sign of the asset sales promised to knock big lumps off the total debt.
It would be a mistake at this stage to exaggerate the level of the bankers' concern. Many of them are sanguine with the progress made so far. Some steps have been taken to reduce debt levels, such as the debt-for-equity swap last year at New York's upmarket retailer Barneys, bought by one arm of DW for close to $1bn in 2007.
And as DW also pointed out to creditors, the background has improved over the past three years, with all the essential indicators moving in the right direction for the emirate. Asset valuations would also be expected to improve in line with this recovery.
Nevertheless, it remains the case that agreed asset sales have not yet materialised. What should DW do about this?
Attention has focused on the big glitzy assets owned by DW, and it is true that there is a big array of these, mostly in the portfolio of the DW subsidiary Istithmar World.
Cirque du Soleil, the new-age circus act; the Mandarin Oriental hotel in New York; and of course the Atlantis Hotel on Dubai's Palm Jumeirah have been mentioned as assets that might be disposed of for serious amounts of cash.
Perhaps, but it seems improbable, certainly in the case of Atlantis. Istithmar paid $250 million relatively recently to become the sole owner of the money-spinning resort complex.
Other assets look more likely. One luxury asset that has attracted some interest from potential buyers is the Fontainbleau Miami Beach Hotel in Florida, while far less glamorous but potentially valuable is the Inchcape Shipping Services business, which has always sat uncomfortably in the Istithmar portfolio.
But while the proceeds of a sale of any of these assets would be a useful contribution and applauded by creditors, the amounts raised would be in the hundreds of millions of dollars. To really make a difference, DW would have to consider doing something with its biggest asset, the 80 per cent stake it owns in DP World.
This really is the jewel in the DW crown, but a difficult one to access. The holding is worth somewhere in the region of $10bn and selling would wipe out DW's debt problem at a stroke. But it is inconceivable Dubai would allow the disposal of this strategically vital business.
Rather, DW is considering ways of realising the value of its stake. A sale of further shares in the open stock market appears to have been ruled out, but that does not mean the shares could not be used as collateral for a debt reduction plan. Creditors and DW would first have to agree on the long-term value of the holding, which DW insists is not fully valued, despite recent rises.
Other ways of utilising DP World's inherent value could also be considered. The deal that allowed DPW to raise $1.5bn from the sale of stakes in its Australian business is one model, while the London Gateway project, due to open this year, would also attract a major investor.
DW has plenty of options. The ticking of the clock should not distract it from choosing the best ones.
 
fkane@thenational.ae