One year after Istithmar World was thought to be facing a fire sale of many of its assets as it sought to cut its debt burden, the company has been linked to a possible acquisition.
Kerzner International Holdings is reported to be considering selling its 50% stake in the Atlantis resort in Dubai, for up to $350m, with Istithmar World, which owns the other half of the resort, named as the potential buyer.
The money raised would be used to restructure $2.6bn in mortgage debt which, according to the Wall Street Journal, is about to become due. Kerzner International was thought to have been negotiating with creditors to extend maturities by up to two years. However, it has been reported that one creditor, Brookfield Asset Management, has asked for a principal payment of more than $200m, double what Kerzner is thought to have offered.
This time last year, according to the Istithmar parent Dubai World's restructuring document, its stake in the Atlantis Hotel was amongst the assets Istithmart was considering selling. Now the property could bail out Kerzner International instead.
Much of the debt relates to the 2006 deal by a consortium of investors including Dubai World, Goldman Sachs' fund Whitehall Real Estate Funds and Colony Capital, to raise $3.2bn to take Kerzner International private. The debt was linked to the group's properties, with much of it on the flagship site in the Bahamas, which is the debt now in question.
Morningstar reported that the Atlantis in the Bahamas saw occupancy of 62% and net cash flow of nearly $135m last year, down from 70% and $167m in 2008. It is thought that the mortgage on the property is non-recourse, which would cost the two-strong brand half its estate if there was a default, although leave the other Kerzner International holdings unaffected.
Towards the end of last year Kerzner International rejected an unsolicited offer from investment group BMB, thought to be worth up to $4bn, despite earlier in the year hiring Blackstone Group to advise it on restructuring its $3.2bn debt, commenting that it wasn't for sale.
BMB was thought to have been interested in expanding the Atlantis brand, with a view to extending its interest in the hospitality sector, in line with increasing interest seen from investors in the hospitality market.
So far BMB has not been linked to the group again, but at the time of the offer it said that it believed that the hospitality and real estate assets within the company had significant potential, particularly in Asia and that it would divest Kerzner's casino assets if the deal could be reached. The group acquired Contrarian Capital and its subsidiary, Beacon Hospitality Partners, a real estate advisory firm for Middle East and Asian sovereign investors, last year and is thought to be eager to build its hospitality portfolio.
Although trading has been improving in Dubai after last year's crisis, there is still an excess of supply after the property bubble which consumed the region. The visitors from the US and Europe which have traditionally come to its resorts have been slow to return.
For Isthithmar, fresh from its own restructuring, there may not be the appetite to assume the estimated $1bn mortgage on the Dubai Atlantis. The opulence of Dubai's hotels, with their efforts to push the star ratings systems to new and greater marble-clad heights, has yet to become attractive again to consumers and it may not wish to up its exposure as the global economy falters, even if it can find a lender to back it.