Loehmann's, the US retailer owned by Istithmar World, filed for bankruptcy just weeks after executives from the Dubai World unit flew to New York on a rescue mission.
The New York discounted designer goods chain is among a long list of purchases made by Istithmar during the boom years, including the luxury US retailer Barneys New York and the Queen Elizabeth 2 cruise liner. Some of Istithmar's investments have soured during the global recession.
"There's a repricing of some of the assets in Istithmar's portfolio bought at the peak of the market as they have not performed as well as the company had hoped," said Rachel Ziemba, a senior analyst covering sovereign wealth at Roubini Global Economics.
"Chapter 11 will ensure restructuring happens in an orderly manner and should avoid a free-for-all among creditors."
Loehmann's Holdings restructuring is the latest development in a string of debt refinancings to affect some Dubai Government-related entities. Dubai World, a conglomerate with interests from ports to property, last month finalised a US$24.9 billion (Dh91.45bn) debt restructuring with its creditors.
Problems for Loehmann's started after demand for its goods waned as US consumers cut back on spending. It filed for its second bankruptcy in 11 years after failing to exchange $110 million of senior notes, according to a filing with the US bankruptcy court in Manhattan.
Under US law, companies unable to repay debts can apply for Chapter 11 protection, a form of bankruptcy that involves the reorganisation of a debtor's financial affairs and assets. The law is intended to offer the debtor a fresh start.
Loehmann's agreed to the bankruptcy filing with "key supporting secured noteholders" and Istithmar, according to court papers.
Istithmar, along with Whippoorwill Associates, an agent for the retailer's discretionary funds and accounts, has agreed to invest an aggregate amount of $25m in Loehmann's subject to certain conditions after its emergence from Chapter 11. The investment would be in the form of a convertible preferred equity stake, according to the retailer.
"We look forward to working constructively through this process and achieving a consensual restructuring," said Andy Watson, the acting chief executive of Istithmar World.
In 2006 Istithmar purchased an 88 per cent stake from Arcapita, a Bahraini investment company, for about $264m.
Founded as a one-store operation in 1921 by Frieda Loehmann, the retailer passed through numerous hands in the 1980s and 1990s before going bankrupt as the decade ended.
A team of advisers led by Dr Shuja Ali, Istithmar's head of portfolio management, visited New York this month to try to sign a deal with Loehmann's bondholders to delay repayment of debts that become due next year.
While it has sold many of its New York assets, Istithmar still owns a building at 450 Lexington Avenue, the Mandarin Oriental hotel at Columbus Circle and Barneys, among other investments.
Loehmann's previously filed for bankruptcy in May 1999 because of growing competition from discount chains. It emerged from bankruptcy the following year after cutting more than $140m in debt and closing 25 stores.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
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Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants
Tailors and retailers miss out on back-to-school rush
Tailors and retailers across the city said it was an ominous start to what is usually a busy season for sales.
With many parents opting to continue home learning for their children, the usual rush to buy school uniforms was muted this year.
“So far we have taken about 70 to 80 orders for items like shirts and trousers,” said Vikram Attrai, manager at Stallion Bespoke Tailors in Dubai.
“Last year in the same period we had about 200 orders and lots of demand.
“We custom fit uniform pieces and use materials such as cotton, wool and cashmere.
“Depending on size, a white shirt with logo is priced at about Dh100 to Dh150 and shorts, trousers, skirts and dresses cost between Dh150 to Dh250 a piece.”
A spokesman for Threads, a uniform shop based in Times Square Centre Dubai, said customer footfall had slowed down dramatically over the past few months.
“Now parents have the option to keep children doing online learning they don’t need uniforms so it has quietened down.”
Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
