Nakheel assets moved to Istithmar

Dubai World, responsible for most of Dubai's $80bn debt, extends restructuring with shifting assets from Nakheel to Istithmar World, its investment holding company.

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ABU DHABI // Dubai World, the government-owned ports and property conglomerate, will shift top staff along with property assets valued at billions of dirhams from Nakheel, its property arm, to Istithmar World, an investment subsidiary. It was a rare public sign of the root-and-branch restructuring under way at the company, which has been hard hit by the financial crisis, with consolidated debt and liabilities of almost US$60bn. Dubai's overall debt is estimated at about $85bn.

"As part of an ongoing organisational operational restructuring process within the group, selected hotel and real-estate assets and the management teams related to these assets, primarily in international markets, have been transferred to Istithmar World," Dubai World said. The key question arising from yesterday's announcement was how the shift of these assets to Istithmar World will help Nakheel pay its debts and Istithmar repair its balance sheet, analysts said.

Chet Riley, an analyst at Nomura Securities, said such a transaction would normally involve the receiving group paying cash for the assets. "There would need to be a balance sheet adjustment between the two entities that could require a cash-in-kind payment," Mr Riley said. If Istithmar World did not have the funds to pay for the assets it would also have the option of refinancing any of the hotels or buildings that generated income to obtain cash, he said.

Among these assets to be shifted are parts or all of Nakheel Hotels, , which is valued at more than US$4 billion (Dh14.69bn). Several of Nakheel's top executives will also join Istithmar World. Hamza Mustafa, the former general manager of The World archipelago, will become managing director of property. Andy Watson, the former chief investment officer of Nakheel, and Binod Narasimhan, former chief financial officer of Nakheel, will take the same titles at Istithmar World.

Sandesh Pandhare, the former managing director of Istithmar World Capital, will become managing director of private equity at the group. All will report to David Jackson, the chief executive of Istithmar World Capital. Among the companies under Dubai World, Nakheel, the developer of the palm-shaped islands off the coast of Dubai, is under the most acute pressure. It has a $3.52bn Islamic bond coming due in December, as well as large debts due to contractors. It is one of about $6.8bn in debts due to be refinanced or paid off by Dubai companies before the end of the year.

Dubai has borrowed $10bn from the Central Bank and is expected to borrow another similar amount to refloat its companies. Istithmar World, which owns such trophy assets as the upmarket retailer Barneys New York, the Queen Elizabeth 2 and the Mandarin Oriental in Manhattan, New York, is also facing its own challenges. With its assets declining in value, Istithmar World is trying to renegotiate billions of dirhams of short-term debt from banks that it had used to fuel a six-year buying spree. Last week, Istithmar World said its two co-chief investment officers left the company.

"Dubai World and its member companies are realigning their real estate portfolios," said Blair Hagkull, regional director of the property consultancy Jones Lang Lasalle. "Companies and conglomerates are reshaping to better handle the future. The sea change relating to real-estate is an incredibly challenging prospect. They are not just changing their names, they are changing their core business models."

In June, it emerged that Dubai World had hired AlixPartners, a restructuring company that advised on the General Motors bankruptcy. Since then, there have been several announcements of consolidations and layoffs. The property divisions of three other Dubai World companies were merged into Nakheel over the summer. There are similar transactions under way at Dubai World that have yet to be announced.

Nakheel's stakes in three game parks in Africa are being transferred to Limitless, another developer owned by Dubai World, according to two employees at Mantis Collection, which operates the parks. A person familiar with the transaction, who declined to be identified, said Limitless would pay Nakheel cash for the assets. A Dubai World spokeswoman declined to comment, saying only: "Dubai World Africa continues to manage the game parks in Africa, as it always has."