Dubai’s Trail of Dud Deals Shows Sovereign Wealth Gone Awry
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By Jonathan Keehner and Serena Saitto
Sept. 14 (Bloomberg) -- Dubai investment firm Istithmar World may be the first sovereign wealth fund to liquidate after a $27 billion spending spree financed largely with borrowed money, people briefed on the matter said.
Unlike government-controlled funds in Kuwait and Abu Dhabi, flush with cash from oil production, or in China, backed by export earnings, Istithmar fueled purchases such as the takeover of Barneys New York by borrowing as much as 90 percent of the money, the people said. Istithmar’s parent, Dubai World, tapped Middle Eastern and European banks including Barclays Plc, Royal Bank of Scotland Group Plc and Deutsche Bank AG, leaving those three with combined debt holdings of at least $1.5 billion, the people said.
“Dubai sovereign wealth funds are leveraged like private equity funds,” said Rachel Ziemba, a senior analyst covering sovereign wealth funds at Roubini Global Economics, a New York- based economic research firm. “Istithmar belongs to a parent company with a significant amount of debt coming due.”
Istithmar contributed about $2.5 billion of its own cash to back $27 billion of purchases since 2003, the people said, speaking anonymously because the strategy was private. It used so-called non-recourse bank loans, backed by specific assets, to finance about 75 percent of its acquisitions, one of the people said. The rest was funded with a mixture of its own cash and money borrowed from banks on a term-loan basis that was backed by Istithmar or Dubai World, the person said.
W, Mandarin Oriental
Istithmar’s deals were part of Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum’s attempt to raise the Arabian Peninsula emirate’s profile as he tried to vault it into the top ranks of the world’s financial centers.
Under Chief Executive Officer David Jackson, the former Lehman Brothers Holdings Inc. executive who has led the fund since 2006, and his predecessor, Muneef Tarmoom, Istithmar roamed the world to target high-end businesses. The fund bought a stake in Perella Weinberg Partners, the boutique advisory firm run by Joseph Perella, and two of Manhattan’s most exclusive hotels, the W Union Square and the Mandarin Oriental at the Time Warner Center. It acquired the Queen Elizabeth 2, the Cunard Line flagship for more than three decades, with plans to convert it into a hotel to be moored beside the emirate’s Palm Island.
Istithmar also bought stakes in Cirque du Soleil, the Montreal-based company known for staging extravagantly acrobatic circus-like performances around the world, and Yacht Haven Grande, a marina complex in the Caribbean catering to so-called mega- yachts.
Some Soured Deals
“The government wanted to put Dubai in the same league as London and New York,” said Victoria Barbary, a senior analyst in London at Monitor Group, a consulting firm based in Cambridge, Mass. “When times were good, the government was happy to have Jackson and his team making headlines around the world.”
Many of the deals have soured.
Barneys is in talks with creditors about a restructuring or bankruptcy. Loehmann’s Holdings Inc., a discount retailer with more than 60 stores that was acquired by Istithmar in 2006, had its junk- rated debt rating cut three notches last week by Standard & Poor’s, based on “poor” operating performance.
Shares of GLG Partners Inc., a hedge fund with offices in New York and London in which Istithmar bought a 3 percent stake, have lost more than 61 percent of their value since the deal was announced in June 2007.
In November of 2007, Istithmar sold an office tower at 280 Park Avenue, home to the headquarters of the National Football League, $1.28 billion. It had bought the tower for $1.18 billion 17 months earlier, public records show.
Share | Email | Print | A A A
By Jonathan Keehner and Serena Saitto
Sept. 14 (Bloomberg) -- Dubai investment firm Istithmar World may be the first sovereign wealth fund to liquidate after a $27 billion spending spree financed largely with borrowed money, people briefed on the matter said.
Unlike government-controlled funds in Kuwait and Abu Dhabi, flush with cash from oil production, or in China, backed by export earnings, Istithmar fueled purchases such as the takeover of Barneys New York by borrowing as much as 90 percent of the money, the people said. Istithmar’s parent, Dubai World, tapped Middle Eastern and European banks including Barclays Plc, Royal Bank of Scotland Group Plc and Deutsche Bank AG, leaving those three with combined debt holdings of at least $1.5 billion, the people said.
“Dubai sovereign wealth funds are leveraged like private equity funds,” said Rachel Ziemba, a senior analyst covering sovereign wealth funds at Roubini Global Economics, a New York- based economic research firm. “Istithmar belongs to a parent company with a significant amount of debt coming due.”
Istithmar contributed about $2.5 billion of its own cash to back $27 billion of purchases since 2003, the people said, speaking anonymously because the strategy was private. It used so-called non-recourse bank loans, backed by specific assets, to finance about 75 percent of its acquisitions, one of the people said. The rest was funded with a mixture of its own cash and money borrowed from banks on a term-loan basis that was backed by Istithmar or Dubai World, the person said.
W, Mandarin Oriental
Istithmar’s deals were part of Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum’s attempt to raise the Arabian Peninsula emirate’s profile as he tried to vault it into the top ranks of the world’s financial centers.
Under Chief Executive Officer David Jackson, the former Lehman Brothers Holdings Inc. executive who has led the fund since 2006, and his predecessor, Muneef Tarmoom, Istithmar roamed the world to target high-end businesses. The fund bought a stake in Perella Weinberg Partners, the boutique advisory firm run by Joseph Perella, and two of Manhattan’s most exclusive hotels, the W Union Square and the Mandarin Oriental at the Time Warner Center. It acquired the Queen Elizabeth 2, the Cunard Line flagship for more than three decades, with plans to convert it into a hotel to be moored beside the emirate’s Palm Island.
Istithmar also bought stakes in Cirque du Soleil, the Montreal-based company known for staging extravagantly acrobatic circus-like performances around the world, and Yacht Haven Grande, a marina complex in the Caribbean catering to so-called mega- yachts.
Some Soured Deals
“The government wanted to put Dubai in the same league as London and New York,” said Victoria Barbary, a senior analyst in London at Monitor Group, a consulting firm based in Cambridge, Mass. “When times were good, the government was happy to have Jackson and his team making headlines around the world.”
Many of the deals have soured.
Barneys is in talks with creditors about a restructuring or bankruptcy. Loehmann’s Holdings Inc., a discount retailer with more than 60 stores that was acquired by Istithmar in 2006, had its junk- rated debt rating cut three notches last week by Standard & Poor’s, based on “poor” operating performance.
Shares of GLG Partners Inc., a hedge fund with offices in New York and London in which Istithmar bought a 3 percent stake, have lost more than 61 percent of their value since the deal was announced in June 2007.
In November of 2007, Istithmar sold an office tower at 280 Park Avenue, home to the headquarters of the National Football League, $1.28 billion. It had bought the tower for $1.18 billion 17 months earlier, public records show.
