Dubai's Crazy Quilt of Assets

What Dubai World, the network of companies at the center of the emirate's mess, could put on the block

By Jonathan Keehner and Serena Saitto

Sheikh Mohammed bin Rashid Al Maktoum wanted to turn Dubai into the next London or Hong Kong, a global hub for finance and tourism. To help execute his vision, the ruler relied heavily on Dubai World, the web of state-owned companies that includes everything from DP World, which operates 49 ports across the globe, to property developer Nakheel to investment arm Istithmar World. Unlike Abu Dhabi, the wealthy emirate to the southwest, Dubai had little oil production to fuel its efforts. Instead, lenders poured more than $100 billion into Dubai, at least $34 billion of which went to Dubai World.

Now, Dubai World is at the center of the mess in the emirate. Executives at the holding company are scrambling to renegotiate $26 billion in debt, which the government said it may not back. The clock is ticking: Roughly $3.5 billion of the debt comes due on Dec. 14. "Dubai World is an example of too big to fail but also too big to guarantee," says Rachel Ziemba, a senior analyst at Roubini Global Economics, a research firm. Dubai World declined to comment.

Regardless of the outcome, Dubai World may have to temper its global ambitions. Already, advisers are assessing the portfolio to figure out what holdings can be sold to raise cash. The conglomerate likely will retain control of its infrastructure assets such as the ports, which are the emirate's crown jewels. But its global real estate and retail holdings may be auctioned off to the highest bidder. Abu Dhabi may go after some pieces in exchange for bailout money, say analysts.

"Sovereign Halo"

The blurry lines between Dubai World, the corporate entity, and Dubai, the sovereign state, only make the restructuring process more unpredictable than that of a typical private company. In the end, the fate of Dubai World may be determined by the families that have governed the region for over a century, rather than investment bankers on Wall Street. "This may just come down to one sheikh calling another," says a senior adviser, who's currently working with Dubai World.

Dubai World's debt might never have hit such unsustainable levels if bankers had peeked behind the curtain. But most figured the emirate, or its neighbor Abu Dhabi, would bail out the businesses if they ran into financial trouble. The belief was so strong that both lenders and Dubai World executives referred to the "sovereign halo" around the enterprise. "Lenders weren't looking too hard into what entity was actually backing the debt," says Eckart Woertz, an economist at the Gulf Research Center in Dubai. "There was an implicit sovereign guarantee, which the government didn't discourage."

Internal documents only underscored that notion. Dealmakers that worked with creditors relied on a highly complicated, labyrinthine chart detailing Dubai World and all its related entities. "It's a bowl of spaghetti in terms of their corporate structure," says a top U.S. executive with extensive dealings in the region. "There are so many different companies and companies within companies." But the document pointed to one reassuring thing: The Dubai government owned 100% of Dubai World.

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