Dubai Fund DIC Expects Doncasters, Almatis Sales In 18 Months

Dubai International Capital (DIC) should complete the sale of the two main assets remaining in its portfolio within 18 months, which will provide it with cash to cover its outstanding debt well ahead of scheduled repayment in two years.

Proceeds from the divestment of the five remaining assets should also give the private equity firm surplus funds to pass to its parent firm, Dubai Holding, to help finance its ambitious projects in the emirate, chief executive David Smoot said.

Part of the investment vehicle of Dubai’s ruler, Sheikh Mohammed bin Rashid al-Maktoum, DIC rose to prominence in the mid-2000s as it took stakes in global brands including Daimler and Sony, and at one point was heavily linked with a takeover of one of England’s biggest soccer clubs, Liverpool FC.

However, like many state-linked entities in the Dubai stable, DIC fell prone to overexuberance and the heavy debt load taken on to finance many of its deals, forcing it into a $2.5 billion restructuring which it completed in April 2012.

Since then, DIC has been selling down its entire portfolio of assets to service its debt, most recently offloading German packaging company Mauser for a total consideration of 1.25 billion euros ($1.72 billion).

With around $1 billion of net debt remaining, which excludes cash it has on its balance sheet, the sales of Doncasters, a British-based engineering aerospace group, and German alumina products maker Almatis will give it the funds to comfortably meet its repayment schedule, Smoot told the Reuters Middle East Investment Summit.

“We have a bullet repayment that’s due December 31, 2016. We’ll finish our task well inside of that deadline.” Under a “bullet” structure, the borrower just pays back the interest on a loan during its lifetime and the full amount at the end.

ASSET SALES

The process of grooming Doncasters, the largest asset left on its books, and Almatis for a sale began this summer and deals with respective buyers should be made within 18 months, Smoot said.

“Assets like this should trade for a double-digit multiple of EBITDA (earnings before interest, tax, depreciation and amortisation),” said Smoot of Doncasters when asked for expected sale value. It generated an EBITDA of 134 million pounds ($216.56 million) in 2013, he added.

Almatis, around 80 per cent owned by DIC with a stake also held by Blackstone unit GSO Capital Partners, had an EBITDA of around $100 million, he said, without giving an expected valuation for the firm.

No investment banks have been mandated to advise on either sale but would likely be selected later to help facilitate the transactions, Smoot said. However, a small team that used to work for consultancy Deloitte was hired by DIC to help prepare the assets for divestment last year.

Two smaller assets could be sold before the end of the year, with Bahraini real estate firm Ishraq, which runs a Holiday Inn Express resort in the kingdom, expected to give DIC around $15 million of cash to reduce its debt pile.

The fate of DIC’s final asset, a stake in Dubai Aerospace Enterprise, is dependent on the actions of majority shareholder Investment Corporation of Dubai. DAE has a leasing business but also owns StandardAero, which was linked with a multi-billion-dollar tie-up with BBA Aviation last year.

“Certainly when, or if, the asset comes to market, there will be a lot of interest in it”, he said of StandardAero, adding there had been a significant improvement in the firm’s performance in the last 18 months, including a restructuring of the workforce and its balance sheet.

DIC 2.0

The positive recovery which DIC has achieved matches a number of other Dubai government-linked entities who have rebounded from their debt problems.

But while the likes of property developer Nakheel have been able to repay their restructured obligations early due to the recovery in Dubai’s economy, DIC’s assets were mostly outside the emirate.

This meant that DIC was reliant on improving the operating performance of its assets, and the strength of the portfolio has allowed it to fulfill obligations to its creditors, Smoot said.

The process of selling off DIC’s assets should leave it with additional cash beyond its restructured debt amount, but Smoot ruled out investing in assets of other Dubai Inc entities in the same way that ICD has acquired companies from state firms struggling with their debt burdens.

“We’ve proven to be good stewards within the Dubai Inc framework and so, from time to time, we have been asked to look at different situations and I’m sure we’ll be asked in the future to do the same”, said Smoot of the process which market participants have labelled Dubai’s asset shuffle.

“Our only focus right now is making sure we shepherd our remaining assets to a successful conclusion.”

However, DIC would be open to channelling cash to its parent firm, Dubai Holding, to help fund a raft of new projects, including plans to build an entertainment district that will include the world’s largest shopping mall.

“How much (cash) I don’t know but I’m sure it’ll be much appreciated by Dubai Holding as they have other uses for the capital.”

Smoot said it was too early to define exactly what DIC would look like after the asset sales, although investment advisory or raising cash from third parties to fund new deals were two potential areas of interest.

“You’d want to have multiple partners supporting your business, so you’re not overall dependent on a single one, and you’d want to shy away from borrowing money, particularly to fund long-term, illiquid equity investments.”

“So that suggests DIC 2.0 is going to look very different from the prior one.”