The restructuring of Dubai Holding is under way and will include a haircut for creditors and injections of fresh government funds, the vice-chairman of Dubai's top fiscal body told the Financial Times.
Mohammed Al Shaibani, who is also Director of the Dubai Ruler's Court, told the FT in an interview that the government had so far pumped $2 billion into the conglomerate.
A year ago, Dubai's other flagship state-owned conglomerate, Dubai World asked for a standstill agreement on $26bn worth of debt.
The group reached a restructuring agreement in September.
Seventy per cent of the banks involved were the same as those in the Dubai World restructuring process, Shaibani said. Dubai World's bank creditors included HSBC, Lloyds, Standard Chartered and Abu Dhabi Commercial Bank. Last week, the cost of insuring Dubai sovereign debt against default or restructuring rose to a two-month high after news that Dubai Holding financial services unit Dubai Group missed two payments on separate loans in recent weeks.
Shaibani said Dubai Holding's problems were "not the size" of Dubai World's, but that its restructuring process was under way, led by Dubai's supreme finance committee.
Asked if the restructuring process for Dubai Holding would include injections of fresh funds and banks accepting haircuts on their loans, Shaibani told the FT: "It is always like this, yes. The basic scenario, everybody has to chip in, everybody has to contribute, keeping in mind the long-term relationship."
Shaibani said banks could expect to win advisory deals as the government considered future asset sales and privatisations. "Priority will definitely go to banks that have been very supportive -- we are very loyal customers," he said. "A lot of the Dubai-based companies are performing really well; it is only the international exposure that was giving us a bit of a challenge."
BACK TO BASICS
Shaibani said Dubai still faced many challenges in terms of tackling its debt and recovering from the financial turmoil that has engulfed the Gulf tourism and trade hub since 2008.
"There are still a lot of challenges ... Each time we say ... it is over, something comes up, whether it is government issues or company-related issues," he said.
He said the specific Dubai government debt stood at a total of between $36bn and $38bn. "And a lot of these debts are operational debts. People do not realise this. Some of these debts, for example, are infrastructure debt," he said.
Shaibani said most of Dubai's companies would be able to service and repay their debts: "When you break it down to individual companies it is doable ... These companies are more than capable of handling their debt situation.
"A $1.25bn Dubai bond issue in September marked the emirate's return to debt markets since its November 2009 crisis. The four times oversubscribed issue challenged predictions that Dubai would have trouble tapping credit markets as the emirate and its companies climbed out of their debt hole. Asset sales would not take place for several years, if at all, he said.
As part of plans to raise funds, Dubai World is prepared to sell off some of its prized assets, including firms such as DP World over eight years, according to a document seen by Reuters.
"The Dubai World strategy that was agreed and was supported by 100 per cent of the banks was based on a five-year and eight- year plan. Because they (creditors) realise that it is not logical for me to sell assets today," he said. "So we are selling assets in five years, if I need to sell assets, but I hope I do not need to sell assets by then."
Asked if Dubai would sell assets or float the companies, Shaibani said: "Yes. Privatise maybe." Dubai could even sell stakes in companies such as Dubai Electricity and Water Authority, Emirates airline and Dubai Aluminium Company Limited (Dubal).
"A lot of people are looking forward to the government, one day, to unlock value. I own everything I mentioned today 100 per cent. I do not need to own 100 per cent of Dewa, or Emirates airline or Dubal."
"In the future, he said Dubai should stick to what it does best. "It is about logistics, re-export, retail business, tourism, services -- that is what we are all about," he said.
Dubai Holding was not available for comment.