CityCenter should be safe from Dubai World debt crisis

The financial troubles of Dubai World, which has asked the markets for a six-month stay on repaying some $60 billion in debt, shouldn’t impact CityCenter, which begins opening next week, one analyst said.

Dubai World, the investment arm of the Persian Gulf emirate, invested almost $6 billion into MGM Mirage in August 2007 to acquire 50 percent of the $8.5 billion CityCenter project and about 9.9 percent of MGM Mirage’s common stock.

CityCenter, which opens the Vdara Hotel, Crystals retail center and the Mandarin Hotel next week, is fully funded and Dubai World is not required to make any additional equity payments.

Union Gaming Group principal Bill Lerner told investors this morning in a research note that MGM Mirage shares, traded on the New York Stock Exchange, could suffer somewhat because of the Dubai World news.

However, he believes any weakness could lead to “a compelling buying opportunity” because of CityCenter’s scheduled opening.

“The CityCenter joint venture has cross-default language that would protect MGM Mirage in the event of Dubai World default, presumably as it relates to Dubai World's equity in CityCenter,” Lerner told investors.

MGM Mirage Senior Vice President of Public Affairs Alan Feldman agreed with Lerner’s assessment.

“It should be noted we were careful to have negotiated an agreement that forced Dubai World to fully fund while initiating cross default language that protects us against any issues at Dubai,” Feldman said.

Nevada gaming regulators approved Dubai World as a licensee earlier this month so the entity can share in gaming revenues earned by Aria, CityCenter’s centerpiece 4,004-room hotel-casino, which opens Dec. 16.

Lerner said MGM Mirage has the right of first refusal if Dubai World tries to sell its 50 percent stake in CityCenter. The project is underleveraged, valued at $4.88 billion by a independent evaluation.

“MGM Mirage could, in theory, execute its right to take-out Dubai World in the event of a required sale of its stake without impacting its own balance sheet,” Lerner said.

MGM Mirage and Dubai World had a near falling out in March, when Dubai world sued its partner in an attempt to get out of the CityCenter joint venture. The lawsuit almost caused CityCenter to file bankruptcy.

MGM Mirage and Dubai World worked out a new agreement five weeks later.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.