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Dubai Holding May Restructure $20 Billion in Debt

Simeon Kerr, Anousha Sakoui and Megan Murphy, Financial Times
Monday, 29 Mar 2010 | 5:54 AM ET

Dubai Holding, a conglomerate owned by the emirate’s ruler, is looking at options that could include restructuring to deal with as much as $20bn in debts as the Gulf commercial hub looks to grapple with broader debt issues.

Sharon Lorimer

The group, which spans financial investments, hospitality and real estate, could become the second large entity in Dubai to restructure debts after government-owned Dubai World tabled a restructuring proposal last week, including a $9.5bn injection of new money to help restructure $24.8bn in debts.

Talks between creditors and advisers had picked up in the weeks before Dubai World’s announcement, which was broadly welcomed as it pledged to repay creditors in full over time but with question marks over interest rates.

The government refused to be drawn on whether Dubai Holding would restructure its debts, but said that the government would not rule out future issues.

Dubai Holding, Sheikh Mohammed bin Rashid Al Maktoum’s holding company, is considering appointing a financial adviser to explore the rescheduling of loans over the next few months, one of the people said.

But others warned that it remained too early to talk about a restructuring and that no final decision had been made. Dubai Holding declined to comment on “speculation”.

Dubai Holding, which accounts for large parts of the domestic economy as well as holding a portfolio of international assets, may be hoping to piggy-back on optimism generated by a Dubai World proposal that avoids a haircut on the principal debt.

But after so much focus on Dubai World, the restructuring of another state-linked conglomerate would act as a reminder of the city’s broader $109bn debt mountain and a property overhang.

Restructuring efforts are expected to focus on the now-merged Dubai International Capital and Dubai Group, which both used large amounts of leverage to build up significant overseas portfolios during the boom. DIC has a $1.25bn loan maturing in June.

Analysts estimate that much of Dubai Holding’s estimated $20bn in debts is held by the investment arms, which own the UK’s Travelodge and the Essex House Hotel in New York. But bankers say the holding company could also have significant private bilateral loans.

The department of finance, advised by boutique investment bank Moelis, is leading the restructuring of Dubai World, and could also help guide the government through a restructuring of Dubai Holding, which has received at least $1bn from the emirate’s financial support fund, helping it meet repayments to date.

Dubai Holding cut staff and realigned business lines last year as it sought to cut costs as the emirate’s financial crisis grew, while some assets have been sold – including part of its stake in regional investment bank EFG-Hermes – to help meet debt payments.

The non-financial wing, Dubai Holding Commercial Operations Group, spans real estate, hospitality, telecoms and business parks, has been downgraded but analysts are less concerned about its ability to meet debt repayments.

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