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Dubai World indicated that it is willing to sell prized assets such as ports operator DP World to pay down its debt pile.

 

Documents published by Reuters revealed the news that the debt-laden conglomerate was willing to let go of "strategic assets" such as DP World, Jebel Ali Free Zone and Dubai Maritime City (DMC) as part of a US $19.4-billion fundraising effort as it tries to reach a restructuring deal with creditors by 1 October 2010.

 

By displaying its willingness to put these assets on the block, Dubai World is effectively offering creditors an insurance policy that if the restructuring plan runs into trouble, it will sell core, strategic assets.

 

Dubai World shocked markets in November 2009 when it announced plans for a standstill agreement and the restructuring of US $26 billion in debt. This put Dubai's hard-won global brand in jeopardy and selling symbols of its success and an integral part of its economy would be the final blow.

 

Under the current restructuring plan, the potential sale of those assets would come at the end of the eight-year period designated for the sales process.

 

August 25, 2010

 

 

Analysis and Forecast: Increasing Risk

 

The news, deliberately leaked by Dubai World, has various implications, all of which are serious.

  • Firstly, they indicate that Dubai has not been able to secure assistance from Abu Dhabi.
  • Secondly, by effectively saying they are ready to sell such prized assets as DP World, Dubai appears to acknowledge its inability to revive its economy in the short term. It not only faces a recession, but a failure of an economic model with serious political implications. This can only make a revival more difficult, as the government-owned entity losses further on its leveraging potential.

The news appears to be a change of strategy that Dubai has been sticking to, by refusing to offer its most successful ventures, like Emirates Airlines to Abu Dhabi. If Dubai is now openly considering disposing of its only income-generating assets, it is likely that other assets like Emirates Airlines will be sold to Abu Dhabi as well in return for helping. This is because it is unlikely Dubai World assets will be sufficient to cover the debt, an exact figure for which has never been given.

 

Overall, the news indicates that the situation with the debt is still not resolved and that Dubai faces further challenges.

 

The figure below shows an estimate of the Dubai World maturing debt over the next several years in US$ billions.