Dubai World, the cash-strapped conglomerate at the center of Dubai's debt crisis, appears set for an unaccustomed period of retrenchment after the emirate's top finance official said Monday the company may need to change course and unload assets as it struggles to pay back lenders.
What eventually gets sold remains uncertain. Clearer is the city-state's position that the government itself won't be responsible for Dubai World's debts, renewing questions about its backing of other state-run companies.
"Like any company that has commitments, part of getting liquidity is selling some assets. Of course local or foreign assets," Dubai Finance Department Director-General Abdul Rahman al-Saleh said in an interview aired by Arab satellite channel Al-Jazeera on Monday.
"These are assets of a company, not assets of a government," he said, adding later that the restructuring was aimed at keeping Dubai World viable going forward.
The comments appeared to cement concerns that Dubai was washing its hands of debts racked up by companies it created and backed during the city-state's frenetic boom years earlier this decade. Easy money and unbridled ambition transformed the tiny sheikdom from desert hamlet to pulsing Arab boomtown.
Dubai's main bourse fell 5.8 percent by close of trading Monday, with stocks sinking to their lowest level in more than four months.
The sale of any major Dubai World holdings would mark a stark about-face for the conglomerate, that repeatedly downplayed talk it might need to unload pieces of its rapidly acquired global empire even as Dubai's financial concerns grew more acute over the past year.
That perception began to shift last week when the company announced its restructuring would include an assessment of options to reduce its debt load, "including asset sales."
"This is the inevitable next step, really," said Christopher Davidson, a professor at the University of Durham who has written extensively about the history and politics of the UAE.
Davidson and others said they expected some of Dubai World's overseas property would be among the first on the auction block.
"It's damaging for their reputation, but it doesn't do much to alter the status quo back home," Davidson said.
A Dubai World spokeswoman declined to comment.
Dubai World has already taken off the bargaining table some key assets, including its profitable port operator.
Other state-run crown jewels not part of the conglomerate, such as the Middle East's biggest airline Emirates, are also unlikely to be sold for now, analysts say.
Emirates airline President Tim Clark said in an e-mailed response to questions he was unaware of any plans to sell part or all of the carrier.
"This would be a decision for our shareholder, the government of Dubai," he said.
Clark added, however, that like Dubai World's, "none of Emirates' debts are guaranteed by the government."
Dubai World's story was essentially that of Dubai — a heavy reliance on borrowed money in recent years to carve out markets far beyond the tiny emirate's shores while building up the city-state, one of seven semiautonomous entities making up the United Arab Emirates.
The company runs the world's fourth-biggest seaport operator, DP World, with operations on six continents. Its wide-ranging investment portfolio includes luxury retailer Barney's New York, a stable of high-end U.S. hotels, and stakes in Las Vegas casino operator MGM Mirage and Cirque du Soleil. Its holdings are so diverse and spread out that its slogan boasts: "The sun never sets on Dubai World."
The emirate, however, shocked global markets on the eve of an Islamic holiday in the Middle East and Thanksgiving in the United States when it announced plans to restructure the conglomerate. The news stoked fears, at least temporarily, that the world's economic recovery was on shakier footing than many believed.
The government said Dubai World would request a delay in paying some of the $60 billion in debt coming due including those of its real estate arm, Nakheel. That subsidiary has $3.5 billion in bonds that must be paid or refinanced by next week.
Many lenders in Dubai and abroad lent Dubai World money on the assumption that, as a company controlled by the government, it had implicit state backing.
"Banks believed the Dubai government ... would not want to risk its reputation, but (the) government effectively called their bluff" when it asked for new repayment terms, said Jan Randolph, director of sovereign risk at IHS Global Insight.
Al-Saleh reiterated the Dubai government's position that there is no state guarantee in Dubai World — remarks that sent stocks tumbling. Shares of market indicator Emaar Properties, builder of the world's tallest skyscraper, dropping by the maximum allowed 10 percent. Dubai's government owns just under a third of the developer.
Al-Saleh said Dubai World's problems stemmed from a reliance on previously easy-to-get, short-term loans that were used to finance long-term projects like luxury high rises and even more manmade islands.
"Most of Dubai World loans range from three to five years, whereas the projects that were financed range from 25 to 30 years," he said. "The difference between the finance terms and carrying out the projects led to this crisis."