Finance Blog number 1

Japanese Financial Services Minister Shizuka Kamei said the central bank should contemplate directly purchasing government debt, increasing political pressure for the policy board to overcome deflation.

“The central bank should consider underwriting debt to help the government create funds for fiscal stimulus,” Kamei said at a parliamentary hearing in Tokyo today. By law, the Bank of Japan is prohibited from buying debt directly.

Kamei’s remarks underscore the growing tension between the central bank and Prime Minister Yukio Hatoyama’s administration over how policy makers can fight price declines. Burdened by the largest public debt in the industrialized world, the government has little room to bolster spending and is urging the bank to take charge in beating the deflation that threatens the nation’s recovery from its longest postwar recession.

“The Bank of Japan is under siege with increasing government pressure and severe deflation,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo, who used to work for the central bank. “The market knows that bond purchases won’t be a panacea for deflation and they would hurt the BOJ’s independence.”

Having the central bank underwrite debt would give the government more access to funds, though it could also heighten investor concern about the nation’s fiscal discipline and drive bond yields higher. The yield on benchmark 10-year government debt rose to 1.31 percent at 1:13 p.m. today.

Fiscal Policy Needed

Kamei said the central bank alone won’t be able to eradicate price declines and that fiscal policy is also needed. Finance Minister Naoto Kan replied by saying fiscal discipline must always be exercised even though spending can help prop up the economy.

“It’s necessary to provide funds for bold fiscal spending” with direct purchases of debt from the central bank, said Kamei, who heads a junior coalition party. “Without fiscal stimulus funds, Minister Kan can’t resolve the economy’s output gap payday loans. He’s not a magician.”

The bank currently buys 1.8 trillion yen ($20 billion) of government debt from lenders each month. Bank of Japan Governor Masaaki Shirakawa has said the purchases are to provide liquidity and aren’t aimed at paying for government projects.

Kamei, head of the People’s New Party, has championed that increased government spending is key to spurring growth. Last year, he forced the government to delay unveiling a stimulus package he said was too small.

‘Show Its Commitment’

“Japan can’t overcome this economic crisis unless the Bank of Japan shows its commitment by going as far as” underwriting debt to pay for government spending, Kamei said.

Kan, a member of the ruling Democratic Party of Japan, has put heat on the central bank to do more to halt price declines and last month indicated he wanted Shirakawa to implement an inflation target. The finance chief said he wants to stamp out deflation as soon as this year and reiterated that he wants the bank to target inflation of 1 percent or higher.

“Given that various efforts to overcome deflation have failed, I won’t say we can immediately overcome this in a few months,” Kan said. “If I were allowed to be ambitious, I’d say I want prices to rise within the year” adding that “that is just my hope.”

Consumer prices excluding fresh food, the central bank’s key gauge of inflation, slid 1.3 percent in January from a year earlier, an 11th straight decline, the government said last week.

Shirakawa, also speaking to lawmakers, said he is committed to keeping policy very accommodative and that having the benchmark overnight lending rate at 0.1 percent has helped lower borrowing costs for companies.

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Hopes that the economy can sustain its recovery drew support Wednesday from news that industrial output rose for a seventh straight month and house construction hit a six-month peak in January.

Analysts cautioned, though, that the gains could falter if consumer demand weakened.

The report on industrial production from the Federal Reserve showed gains in all three major categories: manufacturing, mining and utilities.

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Democratic leaders have told Oregon Gov. Ted Kulongoski they won’t craft legislation that would change Oregon’s kicker laws.

Kulongoski said in a release late Thursday that leaders “do not intend to refer kicker reform and an emergency reserve fund to the November ballot during this special session, or anytime this year.”

The decision means residents will continue to collect refunds when money collected in Oregon’s general fund exceeds projections the state makes every two years.

It also means a major effort to restructure the state’s revenue system, a primary Kulongoski goal, won’t happen during the governor’s term. Kulongoski leaves office Jan. 1.

Kulongoski and several lawmakers from both sides of the aisle sought to change the kicker rules in order to build state reserves, then use that money to help defray effects from recessions and economic downturns.

Critics of the kicker say that because money is returned to state residents instead schools and public safety programs face peril when Oregon’s economy goes south no fax payday loans.

Kulongoski broached kicker reform as an olive branch to opponents of two tax measures that Oregon voters passed on Jan. 26.

“This decision by legislative leadership is disappointing and a missed opportunity for the people of Oregon who strongly support using a portion of the kicker revenues to build an adequate reserve for critical services,” Kulongoski said in his statement.

Kulongoski went as far to say that kicker reform is the Legislature’s most important issue during the short session, which will end around March 1.

“Oregonians deserve the opportunity to establish an emergency reserve fund in our state constitution that will help provide fiscal stability and certainty in the state’s budgeting process,” he said. “The people of Oregon deserve better.”

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Greek Prime Minister George Papandreou said today the government has no plans for new measures to curb the European Union’s largest deficit.

Plans to tame the government finances are “credible,” he told reporters in New Delhi. The EU backed on Feb. 3 the government’s proposals to trim the deficit after Papandreou pledged to raise fuel taxes and the retirement age and extended a wage freeze to all public workers.

Papandreou said today the proposals need to be implemented to achieve their goals, and the nation has substantial funds available from the EU. Yesterday the International Monetary fund said the Greek plan is “appropriate” and European Central Bank President Jean-Claude Trichet said he’s confident Greece can get the deficit under control.

The risk premium investors demand to buy Greek debt over comparable German 10-year bonds widened 10 basis points to 364 basis points the highest in a week. The benchmark ASE stock index fell for a third day, declining 2 percent, bringing its slide for this week to more than 9 percent.

The deficit reached 12.7 percent of gross domestic product last year, and officials are battling to convince investors it can shrink the shortfall to within the EU’S 3 percent limit in 2012 and avoid a bailout. Yesterday Greece’s biggest union approved the second mass strike this month and tax collectors began a 48-hour walkout, suggesting that workers are ignoring Papandreou’s call for sacrifice.

“He can’t come out and say more needs to be done, he has to talk the plans up,” said Peter Dixon, an economist at Commerzbank AG in London. “The question becomes whether Greece can follow through with the plans they put in place and whether they are enough. The jury is still out on that.”

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Former U.S. Treasury Secretary Henry Paulson says in his new memoir that he was prepared to support a government backstop to prevent the bankruptcy of Lehman Brothers Holdings Inc. until he learned the firm’s assets were so mis- marked it would have guaranteed a loss to taxpayers.

Going into a Sept. 12, 2008, meeting at the New York Federal Reserve Bank with the leaders of the largest Wall Street firms, Paulson and then-New York Fed President Timothy Geithner agreed that “if a Bear Stearns-style rescue was the only option, we would take it,” the ex-secretary wrote in “On The Brink.”

Although the book isn’t scheduled for release until Feb. 1, Bloomberg News purchased a copy at a New York bookstore.

The government was able to facilitate the merger of Bear Stearns Cos., a failing New York investment bank, and JPMorgan Chase & Co. by having the Fed guarantee $29 billion of Bear Stearns’s assets. A similar rescue of Lehman proved impossible because a deal to sell the investment bank couldn’t be completed, Paulson wrote. The executives gathered at the New York Fed also concluded Lehman had overvalued its assets by at least $37 billion, he said.

“The toxic quality of Lehman’s assets would have guaranteed the Fed a loss,” Paulson 63, wrote, meaning the central bank couldn’t legally make a loan.

The U.K. government ultimately was responsible for forcing Lehman into bankruptcy, Paulson said. Lehman executives had reached a deal to sell the bank to Barclays Plc, a British bank, on Saturday, Sept. 13.

Chief Executives

The same day, the chief executives of the other New York banks gathered at the New York Fed had agreed their firms would, along with Barclays, collectively finance the Lehman shortfall, Paulson said. The group included Lloyd Blankfein of Goldman Sachs Group Inc., John Mack of Morgan Stanley, Jamie Dimon of JPMorgan Chase, Vikram Pandit of Citigroup Inc., Brady Dougan of Credit Suisse Group AG, and Robert Kelly of Bank of New York Mellon Corp. They agreed to backstop the deal even though under mark-to-market accounting rules, they would have to immediately recognize a $10 billion loss on the Lehman assets, he wrote.

The U.K. government, however, refused to waive a requirement that Barclays submit the deal to a shareholder vote, in spite of a personal plea by Paulson to Chancellor of the Exchequer Alistair Darling. Darling, Paulson wrote, was concerned that if Lehman’s bad assets hurt Barclays, it might affect the entire U.K. banking system.

“The British screwed us,” Paulson, a former chairman of Goldman Sachs, said he told the U.S. bankers the next day.

Accounts Frozen

The former Treasury secretary said he, Geithner, and Fed Chairman Ben S. Bernanke were well aware the bankruptcy of Lehman would cause havoc in financial markets, although the consequences were much worse than they had anticipated. That was in part because Lehman’s U.K. bankruptcy receiver, PricewaterhouseCoopers, froze all of the firm’s accounts in that country, refusing to transfer collateral back to Lehman creditors, Paulson said.

Panicked investors then tried to withdraw funds from other financial institutions, including Morgan Stanley and Goldman Sachs, and credit markets froze. Concerned that publicly admitting the government couldn’t help them would lead to a run that would bankrupt those firms, Paulson said he maintained at the time the government wouldn’t help because it would contribute to moral hazard, a belief the government would always bail out investors.

‘Strict Line’

“In retrospect I’ve come to see that I should have been more careful with my words,” Paulson wrote. “Some interpreted that to mean that we were drawing a strict line in the sand about moral hazard, and that we just didn’t care about a Lehman collapse or its consequences. Nothing could have been further from the truth.”

Paulson wrote that he personally liked Lehman chief executive Richard Fuld, and had made more than 50 phone calls to Fuld, discussing ways to save Lehman, in the months between the Bear Stearns rescue and Lehman’s bankruptcy.

Fuld “was direct and personable, a strong leader who inspired and demanded loyalty,” Paulson said. “But like many ‘founders’ his ego was entwined with the firm” and Fuld waited too long before making a serious effort to sell the company, Paulson wrote.

Bear Stearns savior Jamie Dimon is described in the book as “technically proficient and deeply self-assured.” Other bank executives, however, were convinced Dimon was working against them in an effort to put them out of business, Paulson wrote.

He praises Bernanke as “easily one of the most brilliant people I’ve known,” and Geithner, the current Treasury secretary, for his “keen analytical mind and a great sense of calm.”

‘Scary Smart’

Democratic Representative Barney Frank of Massachusetts, chairman of the House Financial Services Committee, is “scary smart, ready with a quip and usually a pleasure to work with.” During the crisis, however, Senate Finance Committee Chairman Christopher Dodd, a Connecticut Democrat, was “distracted by his unsuccessful campaign” for president, Paulson said.

Much of the crisis played out during the 2008 presidential campaign, and Paulson said he spoke often with Democratic candidate Barack Obama. “I was impressed with him,” he wrote. “He was well informed, well briefed, and self-confident,” Paulson said. “The day after the election, Obama abruptly stopped talking to me.”

Sarah Palin

He spoke less frequently with Republican candidate Senator John McCain of Arizona, and he did not get along with vice presidential candidate Sarah Palin, then the governor of Alaska, according to the book.

“Right away she started calling me Hank” during the first briefing he gave her, Paulson said. While almost everyone addressed him by his nickname, “for some reason, the way she said it over the phone like that, even though we’d never met, rubbed me the wrong way.”

Paulson also wrote that Chinese officials were very helpful during the crisis. He spoke often with Wang Qishan, vice premier of China’s financial and economic affairs, who pledged his country wouldn’t sell its large holdings of U.S. Treasury and agency bonds.

Russia, however, tried to take advantage of the turmoil in U.S. markets, he wrote. While he was attending the Summer Olympic Games in Beijing in early August 2008, he learned that “top-level” Russian officials suggested to the Chinese that the two countries sell a large amount of the Fannie Mae and Freddie Mac bonds they owned in order to force the U.S. to bail out those firms.

The Chinese refused, Paulson said.

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HoliMont Ski Resort is planning a $20 million expansion – the largest in its history – to increase the number of residential units surrounding the recreational complex.

Ultimately, the development calls for construction of 93 single-family homes, 72 condominiums, a 27,000-square-foot main chalet, several new slopes and lifts and a new outdoor skating rink. The work is expected to be done in phases during the next few years.

“We’re going to be cautious, and we definitely don’t want to put HoliMont at risk,” General Manager David Riley said.

The project follows the December opening of the $40 million Tamarack Club condo and hotel complex at Holiday Valley Ski Resort.

Between the two resorts, more than $60 million has been or soon will be invested in Ellicottville, which attracts not only Western New Yorkers but people from Ontario, Ohio and Pennsylvania.

“It’s encouraging,” said Corey Wiktor, executive director, County of Cattaraugus Industrial Development Agency. “HoliMont and Holiday Valley continue to work on projects that help refine and define their respective resorts.”

Despite a sluggish national economy, Riley said he is confident the demand is there for residential units – particularly those that allow buyers to “ski in and ski out” of HoliMont.

Last week, a 6,000-square-foot home in the Greer Hill subdivision that borders HoliMont’s Greer Hill run sold for more than $1.5 million to a Canadian buyer. The sale price set a record for the Ellicott-ville area.

“You look at sales like that and it tells you and me that there still is a lot of pent-up demand for real estate here,” Riley said, “even in this economy fast cash.”

The leveling off of the Canadian dollar is fueling development projects, as well, according to Wiktor.

“I think you are going to see a lot of investment in Ellicottville because of the Canadian dollar,” he said.

Much of HoliMont’s development will take place not in Ellicottville but in the neighboring Town of Mansfield. Officials there are nearly finished with their reviews.

“We’re definitely in the home stretch when it comes to all of our approvals,” Riley said, adding that he expects work to start this year on the first phase of residential units.

Based on early projections, he estimates it will take six to seven years to finish the residential units.

“The one thing we are not going to do is overleverage our membership and put HoliMont at risk,” Riley said.

Added Wiktor: “Traditionally, Holiday Valley and HoliMont do projects at incremental levels. You never see them biting off more than they can chew.”

HoliMont is the nation’s largest private membership ski resort with 4,400 skiers. More than 40 percent come from Canada and 25 percent come from Western New York. The remainder are from Ohio, Pennsylvania, Rochester and New England.

HoliMont was founded in 1964 as a private ski resort and companion to the larger Holiday Valley. It has more than 50 slopes and nine lifts and is open to the public on most weekdays. Weekends and holidays, it’s limited to resort members and their guests.

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Anheuser-Busch InBev said Thursday that it plans to fire 10 percent of its work force in Belgium, home to its international headquarters.

The world’s biggest beermaker blamed the cuts on Belgians drinking less beer. A total of 263 jobs out of about 2,700 will be lost. Cuts include 73 executives.

The company also planned to close a brewery in Luxembourg, moving production of beers like Diekirch and Mousel to other facilities. Job losses also come from changing distribution patterns.

One industry analyst said the layoffs reflect A-B InBev’s relentless focus on cutting costs, a pressure that would exist even without the $17 billion debt remaining from the $54.8 billion acquisition of Anheuser-Busch by InBev in 2008.

"These guys are just obsessive about constantly cutting costs. It’s just an obsession," Trevor Stirling, senior research analyst at Sanford Bernstein in London, told the Post-Dispatch on Thursday no teletrack payday loans.

The job cuts in Belgium show that A-B InBev does not expect to find all of its cost-savings by slashing jobs in St. Louis, home to the company’s North American headquarters.

But the company has wielded a heavy ax in St. Louis, slashing 1,000 employees from a work force that once numbered 6,000.

In Belgium, the job cuts were met with displeasure by a union official.

"InBev promised us that they will try to avoid forced layoffs through early retirement," Carlo Rombauts with the ABVV union told Bloomberg News, "but we’re contemplating actions right now."

Last March, A-B InBev said it hoped to ferret out $2.25 billion in cost-savings over the next three years.

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Home price gains earlier this year flattened out in October, according to a report issued Tuesday.

The S&P/Case Shiller Home Price index, covering 20 of the largest metropolitan areas in the nation, was unchanged in October, after four consecutive months of gains. The index is down 7.3% from 12 months earlier.

"The turnaround in home prices seen in the spring and summer has faded," said David Blitzer, chairman of the Index Committee at Standard & Poor’s, in a statement. "Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip," he said.

Just seven of the 20 cities recorded gains from a month earlier.

The modest gains earlier this year were in part propped up by government initiatives.

"We’ve seen recent stability because of low interest rates and the impact of the first-time homebuyers tax credit," said Pat Newport, a real estate analyst with IHS Global Insight.

Prices are down from their all-time highs set in 2006 by 29% for the 20-city index.

Among the 20 cities, the worst tumble was taken by Tampa during the month. Prices fell 1.6% from September. Chicago and Atlanta recorded 1% losses.

The biggest gainers were Phoenix, up 1.3%, and San Francisco, up 1.2%.

Las Vegas sellers continued to bleed. Prices there fell just 0.1% but that marked the 38th straight monthly decline. The market in Sin City is off 55.4% from its peak. You can buy a home in Las Vegas for the same price it sold for in October of 2000.

"In most of the hardest-hit markets, price declines are moderating," said Mike Larson, an analyst with Weiss Research.

Los Angeles recorded a rise of 0.3% and San Diego prices gained 0.4%. Miami, however, declined by 0.4%.

According to Larson, falling supplies of homes on the market are helping to stabilize conditions. "Inventories are plunging on the new-home side and going down for existing homes," he said.

Not that he’s ready to break out the champagne, even with the New Year close at hand. "The market is recovering but it will be an anemic recovery," he said. 

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General Motors is killing off another well-known brand — Saab, a quirky line of cars known for angular roof lines and ignition keyholes between the front seats — after talks with a Dutch would-be buyer collapsed.

GM, Dutch automaker Spyker Cars and the government of Sweden, where Saabs are made, were in discussions as late as Friday morning. Spyker said the sale was too complicated to complete quickly. GM declined to elaborate on why the deal failed.

GM plans to begin liquidating the brand early next month. However, the Detroit automaker will continue to honor warranties and provide service and spare parts to current Saab owners once the Saab dealerships close, Automotive News reported Friday. The auto trade publication also reported that the brand has 218 U.S. dealers.

Enthusiasts appreciated touches like placing the ignition lock between the front seats rather than on the steering column. Saabs were also known for unusual design, with flatter front windshields and sloping rear windshields that gave the cars an almost backward silhouette.

Saab was also a pioneer in turbocharged engines, beginning with the release of the Saab 99 in the 1970s, and the first carmaker to offer heated seating, in 1971.

GM bought a 50 percent stake and management control of Saab for $600 million after it split from Swedish truck maker Scania in 1989. It bought full ownership in 2000 for $125 million more.

Even after the GM takeover, Saab remained closely associated with Sweden and its history of making safe, reliable cars personal loan for poor credit. But GM never made money on the acquisition. Industry analysts complained Saab lost its distinctiveness in the crowded market for luxury cars under GM, which stripped it of its angular design.

"More and more frequently, they were using GM platforms and sheet metals, moving away from that uniqueness based on styling," said Tom Libby, an independent Detroit-area auto analyst.

It’s the third time this year GM has failed to sell an unwanted brand. In September, auto industry magnate Roger Penske scrapped plans to buy Saturn after he was unable to find someone to make them when GM stops making them in 2011. GM is phasing out Saturn.

And last month, GM halted a deal to sell the European Opel brand to a group led by Canadian auto parts maker Magna International Inc. GM will keep Opel, which, unlike Saab, it considers critical to its international plans.

GM did successfully sell Hummer, which will go to Chinese heavy equipment maker Sichuan Tengzhong Heavy Industrial Machinery Corp.

Saab employs about 3,400 people worldwide, most of them at its main plant in Trollhattan, Sweden. It also has a parts distribution center and a design center in separate locations in Sweden and an engine plant in Finland.

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Sheikh Mohammed bin Rashid Al Maktoum wanted to turn Dubai into a global hub for finance and tourism, the next London or Hong Kong. To help execute his vision, the ruler relied heavily on Dubai World, the web of state-owned companies that includes everything from DP World, which operates 49 ports across the globe, to property developer Nakheel to investment arm Istithmar World.

Unlike Abu Dhabi, the wealthy emirate to the southwest, Dubai had little oil production to fuel its efforts. Instead, lenders poured more than $100 billion into Dubai, at least $34 billion of which went to Dubai World. Now, Dubai World is at the center of the mess in the emirate, Bloomberg BusinessWeek reported in its Dec. 14 issue. Executives at the holding company are scrambling to renegotiate $26 billion in debt, which the government said it may not back.

The clock is ticking: Roughly $3.5 billion of the debt comes due on Dec. 14. “Dubai World is an example of too big to fail but also too big to guarantee,” says Rachel Ziemba, a senior analyst at Roubini Global Economics, a research firm. Dubai World declined to comment.

Regardless of the outcome, Dubai World may have to temper its global ambitions. Already, advisers are assessing the portfolio to figure out what holdings can be sold to raise cash. The conglomerate likely will retain control of its infrastructure assets such as the ports, which are the emirate’s crown jewels. But its global real estate and retail holdings may be auctioned off to the highest bidder. Abu Dhabi may go after some pieces in exchange for bailout money, say analysts.

‘Sovereign Halo’

The blurry lines between Dubai World, the corporate entity, and Dubai, the sovereign state, only make the restructuring process more unpredictable than that of a typical private company. In the end, the fate of Dubai World may be determined by the families that have governed the region for over a century, rather than investment bankers on Wall Street.

“This may just come down to one sheikh calling another,” says a senior adviser, who’s currently working with Dubai World.

Dubai World’s debt might never have hit such unsustainable levels if bankers had peeked behind the curtain. But most figured the emirate, or its neighbor Abu Dhabi, would bail out the businesses if they ran into financial trouble. The belief was so strong that both lenders and Dubai World executives referred to the “sovereign halo” around the enterprise.

“Lenders weren’t looking too hard into what entity was actually backing the debt,” says Eckart Woertz, an economist at the Gulf Research Center in Dubai. “There was an implicit sovereign guarantee, which the government didn’t discourage.”

‘Bowl of Spaghetti’

Internal documents only underscored that notion. Dealmakers that worked with creditors relied on a highly complicated, labyrinthine chart detailing Dubai World and all its related entities.

“It’s a bowl of spaghetti in terms of their corporate structure,” says a top U.S. executive with extensive dealings in the region. “There are so many different companies and companies within companies.”

But the document pointed to one reassuring thing: The Dubai government owned 100% of Dubai World. Lenders that did try to dig into the organization got a fuzzy picture. Dubai World didn’t typically disclose its complete portfolio or provide financials to any of its creditors.

“The banks understood that regular, fully audited reports from Dubai World were simply not available and not to be asked for,” says Chris Turner, a former director of risk and asset management at Istithmar World.

‘Jelly to a Wall’

He estimates that Western banks gave Dubai World at least $15 billion in 2006 and 2007 without looking at the numbers. Turner, who was found guilty in absentia of embezzlement last month, maintains his innocence in the matter: “I fully intend to litigate and defend my actions in a court of good standing” outside of Dubai.

Even Dubai World didn’t know exactly what it owned, according to Turner. In 2007 he started to build a list of all the real estate holdings at Istithmar World, including their current value. His team spent almost a year on the project, a task that Turner said should have taken a few months. Some loan documents and sale agreements were found in a file cabinet in an office that had been empty for months.

“Being a risk officer there was like nailing jelly to a wall,” he says paydayloans.

RBS, HSBC Loans

In a recent report on the debt restructuring published by Moody’s Investors Service, the credit rating company refers to the “limited availability of information regarding the consolidated finances and debt burdens of state-owned enterprises.”

Despite the lack of transparency, Dubai World had no problem borrowing money. British financial firms, including Royal Bank of Scotland and HSBC, arranged about $4.4 billion of the conglomerate’s loans, according to a report by Bank of America Merrill Lynch. HSBC and Royal Bank of Scotland declined to comment.

Dubai World used the cash to fund a flurry of purchases. But dealmakers did so at the height of the credit boom, paying a premium for their global aspirations. The company shelled out $665 million for two New York hotels, the W Union Square and the Mandarin Oriental, whose sale prices each broke a local record of $1 million per guest room, according to Real Capital Analytics. It also has a 50% stake in CityCenter, a resort and casino development on the Las Vegas Strip that’s opening this month.

“They defined the peak of the real estate bubble,” says Dan Fasulo, managing director of Real Capital Analytics.

‘Burning Through Cash’

Now pieces of the portfolio may be sold to pay off creditors. A group of outside advisers is working with Dubai World to assess the damage and figure out the next steps. For example, AlixPartners, a New York restructuring firm, is dealing with the various businesses owned by Dubai World on potential divestitures and layoffs.

“The advisers will review Dubai World’s portfolio, focusing on assets where there is still equity that can be sold as well as those that are burning through cash,” says Fasulo.

In a statement, the conglomerate said Port & Free Zone World (the parent of DP World), Infinity World Holding, and Istithmar World would be excluded from the debt restructuring because of the units’ “stable financial footing.”

CityCenter, the largest-ever privately financed construction project in the U.S., may be one of the easiest assets for Dubai World to sell. The $8.5 billion project has a relatively small debt load. That could make it more appealing to prospective buyers than other assets in the conglomerate’s portfolio.

Vultures Circle

Some properties may be wrested from Dubai World’s control. Troubled loans backed by the W Union Square will be auctioned this month. The winner could use them to gain control of the luxury hotel, according to Real Capital Analytics.

The Mandarin, which is suffering from the slump in travel, may not have enough money to cover debt payments, say analysts. If the hotel does fall behind, pieces of the debt may be up for grabs, too.

Already, opportunists are circling. Private equity firms, such as Los Angeles’ Colony Capital and Starwood Capital in Greenwich, Conn., are checking out real estate, according to people familiar with the matter. Hedge fund Perry Capital, which owns debt backed by Barneys New York, has been approached by investors, including Toronto department store Holt Renfrew, about a takeover of the retailer.

Dubai World will have to be cautious not to unload assets too quickly in the current environment.

Cherry-Picking Assets

“Any desperate fire sale would further limit the amount of cash they can raise,” says Ziemba of Roubini Global Economics.

Regardless, Dubai World faces some steep losses on any sales. The company paid $1 billion for Barneys in 2007. Earlier this year bankers valued the retailer at less than half that.

Abu Dhabi likely will keep close watch on the process. The emirate, which has agreed to provide as much as $15 billion in financial support to Dubai, may offer additional funds to its profligate neighbor.

There may be strings attached this time. Some analysts think the capital of the United Arab Emirates may ask for equity in some assets, cherry-picking those that fit within its own regional dreams. That could include parts of the infrastructure assets, including the ports.

“Abu Dhabi is standing by Dubai, but it won’t be giving a blank check,” says Philipp Lotter, a senior vice-president at Moody’s. “It has drawn a line in the sand.”

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