If the numbers are right...

Last Updated: Fri, Nov 27, 2009 20:10 hrs

Dubai World: Lenders to Dubai probably face writedowns. But the few available numbers suggest the losses won’t be huge.

Dubai World is responsible for three quarters of the emirate’s total debts of $80 billion, according to official statements from a year ago. The emirate’s core holding company, wholly owned by the government, doesn’t publish financial accounts. However, a filing from Nakheel, a property subsidiary of Dubai World, revealed the parent had $59.3 billion of liabilities and $99.6 billion of assets at the end of 2008 – a net asset value of $40.3 billion.

That equity value will have since taken a hammering. Dubai World is heavily exposed to property prices in the emirate, which are estimated to have declined 48 per cent this year, according to real estate research firm Colliers International. Dubai World could have fared worse than the average, as the holding company backed some of the emirate’s wackiest projects. Take a 50 per cent cut on the 2008 asset value and Dubai World comes out with negative equity of almost $10 billion.

Yet the negative number may be somewhat closer to zero. Not all of the ten companies in the Dubai World will have suffered so badly. Ports operator Dubai Port World, which is 77 per cent owned by the holding company but excluded from the restructuring, is performing well. Investment vehicle Istithmar may have overpaid for its stakes in companies such as Canadian entertainer Cirque du Soleil, Standard Chartered Bank and investment house Perella Weinberg, but the portfolio has probably outperformed Dubai property.

Dubai World may have other undisclosed debts lurking, so the hole could end up in the range of $10-20 billion. But lenders may only end up writing down some of that if they are willing to extend maturities and allow Dubai World to sell off some assets. All in all, Dubai World’s potential losses look too small to move the global needle.

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