NEW YORK: Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate's businesses could need help making payments, Morgan Stanley said.

Dubai Holding LLC, Dubai Holding Commercial Operations Group LLC, Borse Dubai Ltd and Dubai Sukuk Center Ltd may join Dubai World in restructuring debt, Morgan Stanley analysts Mohamed W. Jaber and Paolo Batori wrote in a report. Government-controlled Dubai World said last week that it's in talks to renegotiate $26 billion.

It's likely that other state companies will "announce debt restructuring plans over the near term," Jaber and Batori wrote. "We believe that a haircut on the external debt at risk in the area of 40-50 percent is necessary to have a notable long-term favorable impact on public debt dynamics."

Islamic bonds issued by Nakheel PJSC, Dubai World's property unit, that mature on Dec 14 fell 1 cent on Monday to 53 cents on the dollar, the lowest closing price on record, according to Citigroup Inc prices.

Holders of the $3.5 billion of bonds, which touched an intraday low of 42 cents on Nov 27, may win the right to seize a strip of barren waterfront land the size of Manhattan if the company defaults, according to the offering's prospectus. The property forms part of the mostly empty Dubai Waterfront project.

Dubai World may sell assets in the United Arab Emirates and abroad to repay its borrowings, a government official said on Dec 6. Asset sales are normal to shore up finances in such circumstances, Abdulrahman Al Saleh, director general of Dubai's Department of Finance and head of the government fund that's leading the Dubai World renegotiation, said on Dec 6 in an interview with Al Jazeera television.

'Much-needed cash'

"There are a lot of assets that could be liquidated at Dubai World to raise much-needed cash," said Fahd Iqbal, a Dubai-based Persian Gulf equities strategist at Egyptian investment bank EFG-Hermes Holding SAE. "The priority would be to dispose of some of the international assets."

Dubai's government has no intention of selling assets to help Dubai World, Al Saleh said, according to Reuters. He said there was "confusion in the media" that the government intends a sale of its assets, Reuters reported.

New York-based Morgan Stanley outlined three scenarios for Dubai companies' debt restructurings. The first includes only Dubai World's $26 billion of debt. The second climbs to $34.8 billion by adding debt from Dubai Holding while the third totals $46.7 billion by including obligations from other companies.

Dubai's five-year credit default swaps may decline to as low as 300 basis points from about 500 basis points, the analysts wrote. A basis point is 0.01 percentage point and is equivalent to $1,000 a year on a contract protecting $10 million of debt.

The contracts, which fall as perceptions of credit quality improve, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

The country's benchmark stock index is down 17 percent since Dubai said on Nov 25 that Dubai World would seek a standstill agreement on its debt.

Dubai World said on Dec 1 that assets held by its Infinity World Holding, Istithmar World and Ports and Free Zone World divisions wouldn't be included in the restructuring. Those companies, including P&O Ferries, are on a "stable financial footing", Dubai World said.

"You cannot rule out asset sales for those entities outside the restructuring process" as Dubai World tries to reduce its debt, Iqbal said. "All options are available."

Dubai World owns 80 percent of DP World Ltd, the world's fourth-biggest port operator and the Jebel Ali Free Zone, a business park adjoining its flagship Jebel Ali port in Dubai.

Its Istithmar division bought New York luxury retailer Barneys in 2007 for $942.3 million, while Dubai World itself acquired a $5.1 billion stake in US casino company MGM Mirage in 2008.

Bloomberg News

(China Daily 12/09/2009 page17)