Dubai versus bonuses bankers: 1-0

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Kennelijk gaat de onzekerheid door de problemen van Dubai zorgen voor
het niet betalen of kortwieken van bonussen aan toppersoneel bankiers.

Groet / Cees

http://www.nytimes.com/2009/12/08/business/global/08dubai.htm
December 8, 2009
Dubai World Is Pressured to Sell Assets
By LANDON THOMAS JR.
As Dubai World and its creditors steel themselves for weeks of tough
negotiations over the conglomerate’s debt, some foreign investors say
they have enough support to force the company into a default and lay
claim to its most prized assets.

This go-for-broke strategy is being led by QVT, an $8.5 billion activist
fund with a reputation for taking leading roles in complicated
bankruptcy-driven situations. QVT, along with a number of other hedge
funds, is also a large holder of the Islamic bonds of Nakheel, Dubai
World’s troubled real estate unit.

But instead of just going after the prime waterfront land in Dubai by
which the bonds are secured, QVT and other foreign creditors said last
Friday that they would consider suing Dubai World in British and local
courts for its prestige properties, including its ports and foreign real
estate assets held by the conglomerate’s investment arm, Istithmar.

Such a gambit may simply be posturing aimed at threatening Dubai World
with a drawn-out legal process, as opposed a serious effort to recover
these assets — many of which are highly strategic to Dubai and probably
would be difficult to secure, no matter the legal jurisdiction.

Once talks begin in earnest, it could well be that hedge funds and
bankers conclude that the best approach is to work with Dubai World, not
against it.

All the same, the approach underscores the high degree of acrimony that
surrounds the talks — a fury that derives from the belief held by many
bankers that the decision by Dubai World to ask lenders for a six-month
“standstill” on some debt payments was one of choice, not necessity.

Like all of Dubai World’s lenders, the bondholders’ investment thesis
was based on the notion that either Dubai or the federal government of
Abu Dhabi would back all the debts of the troubled conglomerate. Dubai
has said publicly that it is not guaranteeing Dubai World’s debt, and
Abu Dhabi has also made it clear that it would not write its neighbor a
blank check.

For many bankers, the timing was also bad as it came at the end of the
year. According to one Dubai World executive, who did not wish to be
named because of the sensitivity of the issue, several bankers have
complained that their bonuses would be cut as a result of the debt
crisis.

Dubai World has said that it will not pay interest for six months on its
$26 billion of debts relating largely to its real estate properties. If,
by the end of December, more than 25 percent of creditors refuse to
accept the standstill, the real estate unit, Nakheel, will technically
be in default.

Ashurst, the London-based law firm representing the bond holders,
declined to comment Monday.

Foreign bond holders claimed last Friday that they had 40 percent
support for their position, a figure that would come close to
representing most of the foreign stake in the $6 billion in bonds issued
by Nakheel. The rest is held by local banks, which are inclined to
support Dubai World’s bid for a standstill as long as it means they will
not have to take a loss on their holdings.

Much of the 40 percent foreign stake is held by hedge funds, many of
which bought Nakheel bonds at prices as high as 90 cents on the dollar,
expecting that the bonds would be paid off at 1.10 on Dec. 14. Since the
announcement of the standstill, the bonds have traded as low as 40 cents
on the dollar.

Among the foreign holders are Credit Suisse; smaller funds like Aurelius
Capital, based in Vienna; and Fir Tree Partners, an activist fund based
in New York.

The view that Dubai World assets might be obtainable by creditors is
predicated on the belief that, according to bond documents, Dubai World
is named as a guarantor if Nakheel defaults on its bonds and thus
becomes vulnerable to a claim against its assets.

“That route is plausible and you can pursue it any court that takes
jurisdiction,” said Neil Cuthbert, a lawyer with the firm Denton Wilde
Sapte in Dubai.

The Nakheel bonds are secured by a sweeping stretch of empty beach that
is slated for another of the troubled developer’s grandiose projects,
called the Waterfront. While it is estimated that the land may be worth
around $4 billion if fully developed, its value is substantially less
than that without income-producing properties sitting on it.

Dubai World might also pre-empt its bondholders and start selling assets
immediately. Abdulrahman Al Saleh, the director general of Dubai’s
finance department, said Sunday in a television interview that asset
sales were normal in such cases. According to the Dubai World executive,
the conglomerate has already started selling its 2.2 percent stake in
Standard Chartered, the British bank.

In addition to the profitable shipping business, assets that investors
could go after include the Barneys retail chain in New York, the W and
Mandarin Oriental hotels in New York, and a 50 percent stake in the
Atlantis Hotel at the Jumeira beach resort owned by Istithmar, another
Dubai World unit. Other assets include Cirque du Soleil, the circus
group, and Dubai World's interest in the MGM Mirage hotel and casino
complex in Las Vegas.

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