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No credit crunch with Dubai World

Lisa Napoli Aug 22, 2007

No credit crunch with Dubai World

Lisa Napoli Aug 22, 2007


KAI RYSSDAL: MGM Mirage rolled the dice today on a new business partner: It’s Dubai. As in part of the UAE. The government-owned holding company Dubai World is going to take a minority slice of the hotel and gaming enterprise — $5 billion cash on the barrelhead was the sticker price.

Dubai World’s been on a buying spree of late. One of its subsidiaries dropped almost a billion dollars a couple of weeks ago on luxury retailer Barney’s. And earlier this summer it bought a little boat called the QE-2. Marketplace’s Lisa Napoli has more.

Lisa Napoli: What’s going on here is actually very simple. Dubai is sitting on a lot of money. And, Milton Pedrazza of the research firm The Luxury Institute, says:

Milton Pedrazza: They clearly need to diversify their cash out of oil.

Dubai is doing that by snapping up brands associated with wealth and luxury. The kinds of brands only the richest can enjoy. Pedrazza says there’s a reason for that:

Pedrazza: Dubai is trying to convert itself as an entity, as a country, and as a global investor into a luxury brand itself.

Enter MGM Mirage. That company’s been working to diversify its own brand — play down the gambling and build up hotel and entertainment complexes, like its enormous project on the Las Vegas Strip called City Center.

The company also wants to get its mitts on a more international audience. Terry Lanni is chief executive officer of MGM Mirage. He says the deal with Dubai will help him do that.

Terry Lanni: The number of Russian oligarchs and the number of wealthy Indians coming into Abu Dabi and Dubai and throughout the whole Emirates is something that’s very important to us.

Lanni says the fact that Dubai comes with cash and not some complicated private-equity deal is a bonus too. No worries about a credit crunch here.

Lanni: They don’t have to worry about banks. They own banks.

And there’s a lot more cash in Dubai’s coffers waiting to be spent. It has said it’ll spend at least $13 billion on acquisitions this year.

In Los Angeles, I’m Lisa Napoli for Marketplace.

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