Deep in debt

Deep in debt

Istithmar World may have borrowed up to 90 percent of the money it used to buy stakes in companies worldwide.

September 14, 2009 10:21 by Dana El Baltaji

Government-owned investment firm Istithmar World financed a global shopping spree worth $27 billion with money it borrowed from banks, reports Bloomberg, citing sources who were briefed on the firm’s dealings. The firm reportedly paid only $2.5 billion out of its own pocket.

Dubai World, Istithmar’s parent company, fuelled the investment firm’s purchases with credit secured from both Middle Eastern and European banks. Barclays Plc, Royal Bank of Scotland Group Plc and Deutsche Bank AG combined are owed a minimum of $1.5 billion, sources told Bloomberg.

Unlike Abu Dhabi and Doha sovereign wealth funds, which are financed by oil and gas revenues, “Dubai sovereign wealth funds are leveraged like private equity funds,” said Rachel Ziemba, a senior analyst 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.”

The firm reportedly financed 75 percent of purchases with non-recourse bank loans; it remaining 25 percent was made up of its own money and credit from banks on a term-loan basis backed by either the firm or its parent company.

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Tags: crisis, debt, Dubai, Dubai World, Istithmar World, UAE