DIFC Investments to cut $1bn from debt

Dubai finance centre to off-load assets and restructure liabilities

DIFC Investments, the investing arm of Dubai's financial centre, has pledged to reduce its debts by more than US$1 billion (Dh3.67bn) by the end of next year, says a report by the ratings agency Standard & Poor's (S&P). The debt reduction will be achieved through the restructuring of liabilities of $3.1bn and through sales of non-core assets, a spokeswoman for DIFC Investments said.

She declined to identify which assets were for sale but core assets are believed to include the property infrastructure of the Dubai International Financial Centre (DIFC). DIFC has large shareholdings in Borse Dubai, the stock market operator, and Dubai Aerospace Enterprise, the technology group. It also emerged that a 2.2 per cent holding in Germany's Deutsche Bank, bought in the summer of 2007 for an estimated $1.8bn as a strategic investment, was sold the following year.

"It was an economic stake sold in a derivative transaction," said a source familiar with the transaction, which has not previously been disclosed. Remaining assets are believed to consist of smaller foreign shareholdings. The $1bn debt-cutting plan surfaced as S&P confirmed its long and short-term ratings of DIFC Investments's corporate creditworthiness at "B plus/B", where the agency has placed it since last November, and assigned it a "negative" outlook.

S&P is lowering its assessment of the company's stand-alone credit profile to "B minus" from "B plus", but raising its assumptions of government support from "low" to "moderately high". DIFC Investments is wholly owned by the Dubai Government. "The negative outlook reflects our uncertainties about the timing and success of what we see as an ambitious disposal programme," S&P said. The agency estimated DIFC Investments's debt at $3.1bn at the end of last year.

Included in these liabilities are a $500m debt to the Dubai Government, $816m of bank loans over the next five years and a $1.25bn sukuk repayable before 2015 "Although we view this [asset disposal programme] as a positive step with respect to DIFC Investments' creditworthiness, we think it involves execution risk," said S&P. "We also believe that additional asset disposals are necessary in order to put the company on a self-sustainable footing."

S&P added it "could consider downgrading the company ? if it fails to reduce its debt to around $1.3bn, a level at which we estimate it will achieve a break-even operating cash flow". [e-mail]