Dubai Holding's main unit posted a $6.2 billion loss for 2009 and said it may resort to asset sales, sending shares in Dubai sharply lower, in the latest setback to the emirate's troubled finances.
Dubai Holding Commercial Operations Group (DHCOG), 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 after the property crash put its cash flow under severe pressure.
The loss increases challenges faced by Dubai Holding to meet its obligations, estimated at $14.8 billion out of a total $109 billion owed by the government of Dubai and its related entities.
The news sent Dubai's main index down 3 percent with property stocks weakening on anticipation that DHCOG will need to sell more property units, possibly flooding the market, to pay down debt. Banks fell on renewed balance sheet concerns.
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, said UBS analyst Saud Masud.
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.
DHCOG is a unit of Dubai Holding, the conglomerate owned by the emirate's ruler that belongs to the matrix of firms commonly known as Dubai Inc., which was badly battered by the financial crisis and remains in negotiations with creditors.
Concerns about the overall debt burden of Dubai's state-linked companies mounted after Dubai announced a standstill on repaying $26 billion in debt as it restructured conglomerate Dubai World . It unveiled a $9.5 billion rescue plan for the firm in March.
DHCOG said that a debt restructuring was not needed as debt rollover talks continued but that it was considering the sale of certain assets to manage its cash flow.
The group said it held a 19.5 percent stake in mobile firm du , a 37 percent stake Greek telecoms firm Forthnet plus stakes in unlisted firms.
Stakes held at the end of 2009 included a 40 percent stake in the UAE's unlisted mobile phone retailer Axiom, a 35 percent stake Tunisia's Societe Nationale de Telecommunications, and the UK's Interoute Telecom Holding Ltd, according to a company statement.
Some of Dubai's most well recognized brands in the hospitality and real estate sectors fall under the ownership of DHCOG, including the flagship Jumeirah Group, which manages the sail-shaped Burj al Arab hotel.
Such crown jewels are unlikely to be disposed of as part of any asset sales in view of their strategic as well as financial importance for the company.
The company will most likely be keen to sell off loss-making assets in its property portfolio, but with low valuations, a fire sale disposal is likely to be an option of last resort.
The group's real estate units have been hardest hit by the financial slowdown which burst Dubai's over-inflated property bubble, leaving desert construction sites vacant and cranes idle.
DHCOG's property units were consolidated under the broader Dubai Properties, which is composed of Tatweer, Sama Dubai and Dubai properties.
The company said it restructured its real estate businesses in 2009 and that there was no need to restructure outstanding debt as talks continued with banks to roll over existing facilities.
DHCOG said in addition that it faced a damage claim of 2.1 billion dirhams from a customer that was pending arbitration.
(Additional reporting by Amran Abocar; Writing by Thomas Atkins; Editing by Michael Shields and Sharon Lindores)
($1=3.672 Uae Dirham)