Monday, March 23, 2009

Is This Dubai World's Worst Investment?

Dubai World is one of Dubai's huge Sovereign Wealth Funds responsible for investing in companies that it feels will increase in value over time and thus benefit Dubai. Well I think I have found their WORST investment. Back in August of 2007 Dubai World and Mega Casino Operator MGM Mirage became partners when Dubai World agreed to pay $4.3 Billion for half of the gigantic CityCenter Complex Mega Project being built in Las Vegas (note: some sources say Dubai World paid $2.7 Billion). Dubai World also agreed to purchase $2.4 Billion in MGM stock.

Bad move! In August 2007 MGM Mirage stock was trading at around $75.00 a share. Today, March 23, 2009, MGM Mirage stock closed at $3.11 a share!! This is about a loss of 95% of the investment in a little over a year and a half.

That's not all. Dubai World, through its subsidiary Infinity World, is taking legal action against MGM MIRAGE because MGM has said it is so strapped for cash that it may not be able to complete CityCenter Complex... which Dubai World paid $4.3 Billion for a 50% share!! WOW!

Here is an article from TheNational.ae with details about the lawsuit:

Infinity Takes MGM to Court Over Vegas Project

Infinity World, a subsidiary of Dubai World, says it has taken legal action against MGM Mirage after the company allegedly committed a "breach" of its joint venture agreement to build a major project on the Las Vegas strip.

The company is asking a Delaware court to relieve it of any obligations under the agreement after MGM stated in its financial filings on March 17 that "there is substantial doubt about our ability to continue as a going concern." MGM also said it "cannot provide assurance" that it could generate enough cash flow to pay for its share of the project.

The two companies had agreed to build a 31-hectare project in Las Vegas called CityCenter, which is described as the largest casino project in history. The US$8.6 billion (Dh31.58bn) project includes plans for several casinos, hotels, a retail strip and other office and residential buildings. Infinity World contributed $4.3bn to the project and owns 50 per cent of it, Dubai World said.

"The current path of the project is simply unsustainable given our partner’s financial troubles," Dubai World said today, adding that it had been left with "no other option but to act to protect its investment and the future of CityCenter."

Dubai World also alleged that MGM had "mismanaged" CityCenter, causing higher costs despite reducing the scope of the project.

An MGM spokesman could not immediately be reached for comment, but the firm’s chief executive, Jim Murren, told investors last week that he believed the company would succeed despite the challenges it faced. The company was granted a waiver by its lenders until May 15 to restructure at least $7bn of $13.5bn in long-term debt. "I have no illusions that this is going to be easy," he said, according to the Associated Press. "I do not at all harbour any ill feelings towards people who think we will fail, because this is not without risk. But I wake up thinking that we’re going to make progress every day."

The company is being hit by a combination of lower land and property values, less gambling, and declining room rates during the worst US recession in decades.
Indications that MGM was having difficulty with the CityCenter project first emerged in January, when local inspectors found faults in the construction quality of some of the buildings. The company modified parts of the project to cut costs, but it still needs about $1.2bn to finish the project.

Dubai World said it was working with lenders and MGM to ensure the project could still be completed by its deadline of late this year.


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