Dubai Inc.’s Holdings May Go Up for Auction - Tuesday 8th of December 2009

Much of the billions of dollars that Dubai borrowed during the boom years went to help build grandiose trophy real estate projects at home like an indoor skiing arena, the world’s largest airport, artificial palm-shaped islands and the world’s tallest building. But the emirate’s state-owned companies also went on a spending spree abroad, acquiring properties and companies that could now wind up on the auction block — potentially at fire-sale prices — to pay off its creditors.

The emirate’s investment arm, Dubai World, said late Monday that it had begun talks with its creditors over restructuring $26 billion in debt.

Dubai Inc., the catch-all phrase used to describe the various state-controlled investment properties, is made up of several companies with diverse interests ranging from ports to entertainment to city works.

One of the most high-profile purchases made by Dubai during the boom years was the March 2006 acquisition of the British port operator P&O Ports for £3.9 billion ($6.4 billion). The deal made DP World, a Dubai World subsidiary, a top three global port operator, with 46 container terminals in 30 countries, across five continents.

At the time, a bidding war for P&O’s operations broke out between DP World and PSA International of Singapore. DP won out, topping PSA’s £3.5 billion bid. PSA may be willing to step up and take P&O off Dubai’s hands now, but probably at a steep haircut.

DP World said in September that it had not been involved in any discussions about selling a stake in the company to a rival. It also said last week that DP World and its debt were not included in the restructuring process for Dubai World. But now, with the emirate’s difficulties continuing, DP World may be more willing to open up negotiations and sell off its ports at the right price.

Dubai could also sell the Queen Elizabeth 2, the luxury cruise ship it acquired in 2007 for about $100 million. The ship is currently moored off the coast of Dubai and set to be turned into a luxury hotel. Work has yet to commence, so the Queen Elizabeth could potentially sail back home to England or to another Gulf State for the right price.

Many analysts have questioned the fate of Barneys New York, the luxury retailer that Dubai World acquired two years ago for $942 million. Barneys has been working with Perella Weinberg Partners (which counts Dubai as one of its stakeholders) on its options for restructuring. It isn’t clear yet what lies ahead for Barneys, although two of its biggest debtholders, Perry Capital and Ronald Burkle’s Yucaipa Companies, may seek control of the retailer soon, according to The New York Post.

Another property that may be up for consideration is Dubai World’s stake in the $8.5 billion CityCenter project on the Las Vegas strip. The 67-acre residential and casino site, co-owned by MGM Mirage and the subject of some major conflict earlier this year, includes six towers with 2,392 apartments and as many as 5,900 hotel rooms.

Dubai poured about $4.3 billion into the project, although its stake and MGM Mirage’s stake are currently worth about $2.5 billion each, according to MGM Mirage’s latest estimates, according to Bloomberg News. Dubai World also owns MGM Mirage stock, currently valued at about $275 million.

It is unclear whether Dubai World would seek to sell the CityCenter stake, and the right of first refusal for any sale belongs to MGM Mirage. It’s worth remembering that the market for gaming real estate — especially in hard-hit Las Vegas — is low, so the investment firm may not reap much in the way of profit.

Another major trophy that could be up for sale, or at least a partial sale, is Emirates Airlines, one of Dubai’s crown jewels. Emirates may be in discussion to sell around 30 percent of itself to a rival airline, Etihad, which is owned by Abu Dhabi, according to The Times of London. Emirates, which has orders for $55 billion worth of aircraft from Boeing and Airbus, is for the most part profitable. It paid out $776 million in dividends to the government of Dubai last year. The strong payout could see Emirates fetching a relatively high price if it goes on sale.

Dubai also holds stakes in various financial firms including Deutsche Bank, HSBC, the London Stock Exchange and Standard Chartered, all which could be sold to pay off its debt. But the stock prices of these firms have been depressed by the financial crisis, and losses in these investments might be too much for even Dubai to swallow.

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