Dubai investment firm Istithmar World may be the first sovereign wealth fund to liquidate after a $27bn spending spree financed largely with borrowed money, according to a report by Bloomberg.Unlike government-controlled funds in Kuwait and Abu Dhabi, flush with cash from oil production, or in China, backed by export earnings, Istithmar fueled purchases such as the takeover of Barneys New York by borrowing as much as 90 percent of the money. Istithmarâ??s parent, Dubai World, tapped Middle Eastern and European banks including Barclays Plc, Royal Bank of Scotland Group Plc and Deutsche Bank AG, leaving those three with combined debt holdings of at least $1.5bn, according to the report.
Istithmar contributed about $2.5bn of its own cash to back $27bn of purchases since 2003. It used so-called non-recourse bank loans, backed by specific assets, to finance about 75 percent of its acquisitions. The rest was funded with a mixture of its own cash and money borrowed from banks on a term-loan basis that was backed by Istithmar or Dubai World.
Istithmarâ??s deals were part of Dubai ruler Sheikh Mohammed bin Rashid Al Maktoumâ??s attempt to raise the Arabian Peninsula emirateâ??s profile. Under Chief Executive Officer David Jackson, the former Lehman Brothers Holdings Inc. executive who has led the fund since 2006, and his predecessor, Muneef Tarmoom, Istithmar bought stakes in Perella Weinberg Partners and two of Manhattanâ??s most exclusive hotels, the W Union Square and the Mandarin Oriental at the Time Warner Center. It acquired the Queen Elizabeth 2, the Cunard Line flagship for more than three decades, with plans to convert it into a hotel to be moored beside the emirateâ??s Palm Island.
Istithmar also bought stakes in Cirque du Soleil, GLG Partners, MGM Mirage and Yacht Haven Grande, a marina complex in the Caribbean catering to so-called mega yachts.
Many of those deals have now soured and Dubai World is in talks with its creditor banks to restructure at least $12bn in debt.
