Dubai Holding in finance review

The group's two biggest units may be advised to delay repayments as emirate looks to tackle an overall debt load of about $109bn.

DIC's investments range from the electronics maker Sony to Madame Tussauds waxworks museums and Travelodge hotels.

Dubai Holding has hired financial consultants to review the finances of two of its largest units. This follows moves by Dubai World, another of the emirate's three major government-owned conglomerates, to seek fresh terms on US$24.8 billion (Dh91.09bn) of loans last year. A source familiar with the company's plans confirmed a report by the Financial Times that Dubai Holding had hired financial consultants to review the books of its Dubai Group unit and Dubai International Capital (DIC), which has investments in companies such as the Madame Tussauds waxworks museums and Travelodge hotels. DIC has appointed Deloitte while Dubai Group has hired KPMG.

The accounting companies are being asked to evaluate the subsidiaries' financial health and make recommendations that could include pushing for lower interest rates and delaying debt repayments. A third Dubai Holding division, the Dubai Holding Commercial Operations Group (DHCOG), has hired PricewaterhouseCoopers, another accountancy company. That move, however, relates to its efforts to refinance loans on normal commercial terms, not to restructure them, according to the source.

Hiring consultants "would make sense, given what's going on in the country", said Khalid Howladar, a vice president at Moody's Investors Service, a global agency that rates DHCOG's debt. "These problems are not necessarily localised at Dubai World, and for the rest of the Dubai Inc companies, given the funding environment and debt maturities and general balance sheet issues, it would make sense that these guys would be talking to advisers."

Debt talks involving DIC and Dubai Group have yet to move beyond the first stages, but any change in terms on Dubai Holding's borrowings would open a major new chapter in the emirate's tackling of an overall debt load of about $109bn. Dubai's three main holding companies - Dubai World, Dubai Holding and Investment Corporation of Dubai - are believed to be responsible for most of that debt. Dubai World last year embarked on its restructuring of $24.8bn of debt and in March made a formal proposal to banks and trade creditors.

They have yet to accept the proposed terms, which call for 30 per cent of bank debt to be repaid in five years and 70 per cent in eight years, with 1 per cent interest and an extra 1 per cent payment at the end of the eight-year term. Trade creditors and investors have been offered separate deals. A spokesman for Dubai Holding declined to comment. An asset manager in Dubai, who declined to be identified, said market participants had long expected that a reworking of debt was on the cards for Dubai Holding.

The news that the conglomerate had hired accountants, along with the investment bank Lazard, was not surprising, he said. Morgan Stanley in December estimated Dubai Holding's debt at $19.6bn, about $15bn of which was publicly disclosed. A source close to the company, however, said that its total debt stood at about $12bn. It is unclear at this stage how much of that debt the conglomerate may seek to restructure.

Through four business "verticals" created in an organisational restructuring last year, Dubai Holding has interests in the property, hospitality, business parks and financial services sectors. Dubai Properties Group, its main property arm, owns Dubai's Jumeirah Beach Residence and is behind the emirate's huge Business Bay development. TECOM Investments, its business parks subsidiary, owns Dubai Internet City, Dubai Media City and other specialised free zones. Its hospitality division owns the Burj al Arab, and its investments division, which includes Dubai Group and DIC, owns a range of financial services companies.

DIC, a private equity company, bought the Tussauds Group in 2005 for £800 million (Dh4.4bn). Tussauds was merged in 2007 with Merlin Entertainments Group, and DIC retains a 20 per cent stake in the combined company. DIC has also made a £675m investment in the UK's Travelodge hotel chain, and it bought Alliance Medical, a British diagnostic imaging company, for £600m in 2007. DIC is currently in a dispute in the US over the bankruptcy of Almatis, a company in its portfolio that is seeking a debt restructuring that would erode DIC's stake. Almatis said yesterday that 77.4 per cent of its senior debt had been voted in favour of the proposed restructuring, more than enough to move the plan forward.

Dubai Group, meanwhile, owns the Dubai Insurance Group, Noor Investment Group and Dubai Banking Group. Dubai Banking Group last year acquired almost half of Shuaa Capital, the UAE's largest investment bank, as part of the resolution of a dispute over a convertible bond. [e-mail]