Dubai Holding's main unit said it may resort to asset sales to deal with its debt after posting a $6.2 billion loss for 2009, sending shares in Dubai tumbling as the market reacted to the latest setback for the emirate.
Dubai Holding Commercial Operations Group (DHCOG), a unit of the conglomerate owned by the Gulf Arab emirate's ruler, took a big hit on its exposure to Dubai's property crash.
The unit said it was in talks with banks to roll over debt and had access to emergency funding if needed as it renegotiated obligations to trade creditors. Among its high-profile assets is the Jumeirah Group of hotels.
DHCOG said debt restructuring was not needed but it was considering the sale of certain assets to manage its cash flow.
The loss increases the challenges for Dubai Holding -- one of the emirate's three state-owned firms along with Dubai World and Investment Corporation of Dubai -- to meet its debt obligations, estimated at $14.8 billion out of a total $109 billion owed by the government of Dubai and its related entities.
Dubai Holding has always been lurking in the background as a serious problem to address once the situation with Dubai World had been clarified, said David Butter, head of Middle East and North Africa at Economist Intelligence Unit in London. We now have a clearer view of the dimensions of the problem.
That said, DHCOG is carrying the bulk of Dubai Holding's debt and it seems probable that it will have to reschedule some of its obligations, Butter added.
Dubai's main index <.DFMGI> closed down 3.1 percent with property stocks weakening on anticipation that DHCOG will sell more property units into an already saturated market. Bank shares fell on renewed balance sheet worries.
It is sure to have knock-on impacts on the entire economy. The banks will be seriously challenged to lend, so it's all again part of a vicious cycle, UBS analyst Saud Masud said.
It will definitely have knock-on impact on banks. Their books will have to be revalued to make adjustments to the write off, he said. The concerns in real estate markets are far from over.
NOT DUBAI WORLD
Dubai Holding is part of a matrix of firms commonly known as Dubai Inc., which was badly battered by the financial crisis. Its Dubai International Capital unit last week sought a three-month delay on debt repayment.
Dubai World shocked markets last November with plans to delay repaying $26 billion in debt. The firm said in May it had reached a deal in principle to restructure $23.5 billion with core bank creditors.
Analysts said DHCOG was in a better situation than Dubai World, which needed a last minute-bailout from Abu Dhabi to repay an Islamic bond in December, as its debt maturities were further in the future. DHCOG also generates cash flow, unlike Dubai World's Nakheel property unit, which is part of an overall group restructuring.
Andre Andrijanovs, a corporate analyst at distressed debt firm Exotix Limited in London, said he didnt expect Dubai Holding to undergo the same process.
It is not going to be a blanket restructuring, Andrijanovs said. I don't expect them to touch anything else. They will just be talking to banks to term out the bank loans.
Company crown jewels are unlikely to be disposed of as part of any asset sales in view of their strategic and financial importance for the company.
They include some of Dubai's most recognized brands in the hospitality and real estate sectors, including the flagship Jumeirah Group, which manages the sail-shaped Burj al Arab hotel.
In addition, the group has a 19.5 percent stake in Dubai mobile firm du and a 37-percent stake in Greek telecoms firm Forthnet , plus stakes in unlisted firms as of December 31, according to a company statement.
DHCOG said it also faced a damage claim of 2.1 billion dirhams from a customer, which was pending arbitration.
($1=3.672 Uae Dirham)
(Writing by Thomas Atkins and Amran Abocar; editing by Micheal Shields, Sharon Lindores and Karen Foster)