Ports exempt from restructure plan

Dubai World, whose empire includes Nakheel, the builder of the iconic palm-shaped islands, and the investment company Istithmar, has around $60 billion of consolidated liabilities.

The Dubai Government says DP World, the ports operator, would be exempt from the restructuring of its parent company, Dubai World, seeking to contain the fallout from its proposed freeze on debt repayments. Dubai's port and free zone businesses are believed to be the most profitable in the Dubai World portfolio. The holding company, which owns a wide range of units including the investment company Istithmar and the developer Limitless, has about US$60 billion (Dh220.39bn) in consolidated liabilities. Its flagship Nakheel, the developer of the Palm islands, must repay $4.1bn for an Islamic bond on December 14. "The Government of Dubai has confirmed that DP World and its debt are not included in the restructuring process for Dubai World announced earlier today," the Government said in a statement issued Thursday. The clarification followed the surprise announcement on Wednesday that Dubai World would ask creditors for a six-month "standstill" agreement on debt repayments while it restructured. The news affected global debt and equity markets, with Nakheel and Dubai bonds falling sharply while Dubai credit-default swaps, or the price to insure against a default in sovereign bonds, rose sharply. Ratings agencies reacted quickly to the move and hours later downgraded the credit ratings of several government-related companies by between two and four notches, citing renewed questions over the Government's financial support. Standard & Poor's (S&P) yesterday also placed three Dubai-based banks - Emirates NBD, Mashreqbank and Dubai Islamic Bank - on "ratings watch", citing concern over their exposure to Dubai World. "The rating actions reflect the large exposure these banks have to Dubai World and Nakheel, and more generally to Dubai-based Government-related entities, and the risks that the standstill agreement would pose to these banks," said Mohamed Damak of S&P. "This comes at a time when the deteriorated economic environment, including the fall of real estate prices, has already started to weigh on the financial profile of these banks." The announcement regarding DP World was welcomed by markets and within the company itself. "This [separating the company from the Dubai World restructuring] makes perfect sense. We have very tradable assets and a very attractive business," a DP World executive said, speaking on condition of anonymity. "We're seeing the benefit as the world recovery comes to an end. In fact, this might be the right time for Dubai World to think about selling more shares." Dubai World and its units owe roughly $24.27bn in loans and bonds, Deutsche Bank has estimated. Its consolidated $60bn in liabilities includes non-debt obligations such as land grants. The world's fourth-largest port operator has been impacted by the global economic crisis. Third-quarter container volumes were down 6 per cent against the same period a year ago, but that fall has slowed compared to earlier months. The company has warned that the fourth quarter would be challenging; still it expects profits around $1.1bn for the full year. DP World is 77 per cent owned by Dubai World, after the balance was floated on the NASDAQ Dubai exchange in 2007. Last year, some executives wanted to increase the market-listed proportion with a flotation on another exchange, probably London, before the plan was overtaken by an approach from a private equity company, thought to be Abraaj Capital, earlier this year. The proposed standstill agreement, which would freeze debt repayments at least until the end of May, would affect an estimated $5.9bn in debt that Nakheel owes by that date. The next payment due is for $4.1bn on December 14. Standstill agreements are a routine part of the process when companies face financial difficulties. Generally, by agreement with creditors, the schedule for interest payments and repayment of the principle loan is put on hold for the duration of the agreed "standstill" period - in the case of Dubai World until May 30 next year - but interest still accrues. The final level of settlement emerges from a negotiating process between issuer and bondholder - in the case of a sukuk - or between borrower and creditor (in loans). "It's horse trading. Usually both sides realise it's in nobody's interests to pull the trigger," said one banker. Some analysts speculated that Dubai might dispose of assets to meet the obligations, especially international property holdings. @Email:[e-mail] [e-mail]