New era for restructuring dawns in Dubai

Almost a year after Dubai World began its $24.9 billion restructure Dubai Group, a unit of Dubai Holding, has begun talks on debt restructuring.

On the eve of Eid last year, Dubai World sent shockwaves through global markets when it asked creditors for a standstill on billions of dollars in debt obligations.

A year later, the emergence of another debt restructuring story at another Dubai conglomerate is unlikely to create the same tremors.

Dubai Group, one of three main branches of Dubai Holding, said yesterday it had appointed a creditors' committee to start talks about a debt restructuring. It marked the first such move at a major government-linked group since Dubai World began its US$24.9 billion (Dh91.44bn) restructuring.

Yet economists have long expected that units of Dubai Holding, owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, would seek to restructure debt. Dubai Holding Commercial Operations Group and Dubai International Capital - the conglomerate's two other divisions - have already sought extensions on loan repayments as they enter talks about a longer-term solution.

The Dubai World restructuring agreement, which was finalised last month, showed that negotiation was a "market-friendly" way to sort out Dubai's broader debt issues, said Turker Hamzaoglu, an economist at Bank of America Merrill Lynch. "There is a Dubai World restructuring which is successfully progressing and to be completed soon," he said. "And then we're saying restructuring at Dubai Holding is possible. They're going to go through with that one."

Though the size has yet to be revealed, the Dubai Group restructuring will be much smaller than Dubai World's. Dubai Holding as a whole has only $9.1bn of publicly held debt, considerably less than other major government-linked conglomerates such as the Investment Corporation of Dubai, which has $27.1bn, and Dubai World, which had $28.9bn due before its restructuring.

Alfred Fayek, the head of MENA equity sales at EFG-Hermes, an Egyptian investment bank, said the Dubai Group talks showed the emirate was learning from what happened with Dubai World last November.

Instead of illuminating worrying issues for global investors, the initial stages of Dubai Group's restructuring appear to have taken place in the background.

"At least this time they know what they're talking about from experience," Mr Fayek said.

Dubai and its government-related companies have a total of $110.6bn of outstanding public debt, according to Bank of America Merrill Lynch figures. A significant amount - $48.5bn - comes due next year and in 2012.

Dubai Inc has several ways of addressing those dues. The companies can restructure, delaying repayment for several years. They can refinance the debt by issuing bonds, which has become a viable option in recent months as credit markets open up and stimulus measures in the US push more funds into emerging markets. They can also sell assets to raise cash and repay, which many government-linked companies are already doing.

The real question, however, is whether after exhausting all of those options Dubai will still need more help from Abu Dhabi or the Federal Government, after the two injected a total of $20bn last year.

Garbis Iradian, an economist at the Institute for International Finance in Washington, recently said another lifeline may be needed.

But Mr Hamzaoglu said that depended on whether global credit markets stayed open enough for government-related companies to either restructure debts or issue new bonds to pay off debt as it matures. In the long run, he said, Abu Dhabi would probably have to step in as a five-year due date for aid it provided last year drew closer.

"There's a light at the end of the tunnel," he said. "It's a long tunnel but last year when Abu Dhabi stepped in we were not sure whether it was daylight or a train coming. So now we say that it is the daylight, that they can make it."

* with reporting by Farah Halime