Dubai's financial free zone is considering asset sales after its investment arm reported US$562.3 million (Dh2.06 billion) of losses last year because of the declining property market and soured investments. Dubai International Financial Centre (DIFC) Investments, which owns properties and invests on the DIFC's behalf, wrote down $438.6m worth of property after revaluing its holdings and saw other losses at high-profile acquisitions it made in 2008, such as a majority stake in the luxury retailer Villa Moda, it said on Sunday.
"Regional markets continued to be volatile and like many other institutions, DIFC Investments faced a difficult business environment in 2009," said Ahmed Humaid al Tayer, the recently appointed governor of the DIFC. Mr al Tayer said this year would be "volatile and challenging", but that DIFC Investments would weather the market swings by managing its portfolio and "where relevant, divesting assets".
The DIFC has hired the global consulting firm McKinsey to help devise a strategy for the free zone to remain a dominant business centre for the region. Mr al Tayer has been charting a new course for the DIFC since being named governor in November after the sudden departure of Omar bin Sulaiman, who had overseen the financial centre during the boom years of the economy. Mr bin Sulaiman was arrested in March for allegedly embezzling Dh50m from the DIFC. He could not be reached for comment on Sunday.
Bisher Barazi, who had worked in the DIFC for five years, stepped down as the managing director of DIFC Investments in December last year. He filed a lawsuit last month against DIFC Investments seeking $354,223 of salaries he claims are owed to him, according to legal documents made available on Sunday. DIFC Investments wrote down $438.6m due to declines in the value of its properties, which include more than 185,800 square metres of office space in the Gate building and the neighbouring Gate Village of the DIFC, as well as other land in the free zone.
"Those that went into the market at the height will inevitably take a loss," said Nicholas Maclean, the head of the regional office of the property consultancy CB Richard Ellis. "This is not just a Dubai or Abu Dhabi issue, but across the global markets a lot of people have taken write-downs or losses on real estate. We've seen this with a range of financial institutions." The company's losses on property values were due in large part to a change in the way the DIFC did its calculations. The group's property holdings had been valued previously "at cost", reflecting only the price originally paid for them and not incorporating any market fluctuations that could have lowered their value. DIFC Investments also revised its 2008 financial statements to reflect the change in accounting policy.
"During the current year management has decided to change the accounting policy for the subsequent measurement of investment properties," it said. "Management has decided to account for the investment properties using the fair value model whereby subsequent to initial recognition all the investment properties ? are stated at fair value which reflect market conditions at the reporting date." DIFC Investments also lost $82.3m on an investment in Villa Moda, the retailer based in Kuwait with branches around the region. The group said its 60.36 per cent stake in the Kuwaiti company had been classified as a "discontinued operation" and said a "disposal" was expected to be completed this year.
Another source of losses for DIFC Investments was its share of joint ventures and other stakes in a wide range of associated companies. Those included Waqf Trust Services, which DIFC Investments said was liquidated last year. The company had its Dubai Financial Services Authority licence withdrawn last year, and it was closed due to a "reassessment of [DIFC Investments'] future business strategy".
In addition to its $562.3m of losses last year, DIFC Investments revealed a $361m write-down relating to its investment in Borse Dubai, which owns part of Dubai Financial Market and NASDAQ Dubai. The company said its stake in Borse Dubai was reduced to 10.29 per cent from 20 per cent after loans to Borse Dubai from its shareholders were converted into equity in the company. Essa Kazim, the chairman of Borse Dubai, said the company's shareholders were DIFC Investments, Investment Corporation of Dubai and Dubai Group. Two tranches of debt had been converted into equity last year, Mr Kazim said.
Meanwhile, DIFC Investments said it reclassified $500m bank borrowings to loans from the Government of Dubai. Added to another $500m loan from the Dubai Government, DIFC Investments' total obligations to the Government stood at $1bn last year, the statements said. DIFC Investments also has an outstanding $1.25bn Islamic bond, or sukuk, that it issued in 2007. bhope@thenational.ae afitch@thenational.ae
