beyondbrics

After a delay of almost a month, the 2009 financial results of Dubai Holding’s commercial arm were unveiled today.

The 88-page document released this morning on Nasdaq Dubai’s website from Dubai Holding Commercial Operations Group, shines a spotlight on the economic turmoil afflicted on the emirate by Dubai Holding, a conglomerate majority owned by the ruler, Sheikh Mohammed bin Rashid Al Maktoum.

The results are another stark reminder of the challenges facing Dubai since the real estate bubble collapsed, dragging down economic activity and confidence in the once-invincible emirate.

Revenues from real estate and the group’s popular hotel chain have slumped. The company has also had to book impairments of Dh22.5bn ($6.13bn), largely from its property and land portfolio.

On top of this the group faces legal claims of almost Dh3bn related to the fallout from the bursting of the emirate’s property bubble. This has been made worse by a raft of allegations of financial foul play as executives at state-related entities face jail as part of an emirate-wide antigraft probe that shows little signs of relenting.

Dubai hasn’t seen financial results this bad since Nakheel, the troubled real estate arm of Dubai World which last December sucked the emirate deeper into crisis with a shock standstill request.

That journey has made significant progress as banks edge towards an agreement on restructuring $23.5bn in debts. Now it is Dubai Holding’s turn. The good news is that the size and scope of the problem is nowhere near as pressing as Dubai World’s.

In spite of these apparently alarming results, DHCOG is seen as the “good bank” within Dubai Holding in comparison with the conglomerate’s more troubled investment arms – Dubai International Capital, which has already opened talks on debt extensions, and Dubai Group. These two companies, which are now advised by Lazard, made billions of dollars of leveraged purchases in the boom years and now face problems in paying back their debts.

DHCOG is also in talks with banks to refinance a $555m loan due in July, with banks largely resigned to the fact that they will have to play ball. Two DHCOG bonds due in 2011 and 2012 will doubtless generate concern.

People close to the situation say the company will be able to sell sections of its large land bank to help meet deferred payments on loans.

But that puts a lot of faith into the recovery in Dubai’s real estate market.

Ahmed bin Byat, chief executive, says the market is now stabilising and will recover from 2011. Yet Dubai Properties, part of DHCOG, is itself planning to hand over 21,000 units by 2012, adding yet more inventory to the already oversupplied Dubai market – move that could push prices further downwards.

In reality, however, officials acknowledge that there will always be other means of support for a company owned by the ruler. The government’s support fund has already loaned Dubai Holding around Dh4bn.

And, as revealed by the financial results, the government-owned Dubai Water & Electricity Authority has invested Dh175m to raise its stake in Dubai Holding’s utilities arm, Empower, to 62 per cent from 50 per cent, diluting DHCOG’s stake to 38 per cent.

As Dubai continues to deal with its debt issues, they can only recede – but there is still a long way to go.