12/03/2009 12:00AM

Dubai blinks, Kentucky winces


LEXINGTON, Ky. - News on Nov. 25 that Dubai World, the investment arm of the emirate of Dubai, had requested a six-month postponement of payments on $59 billion in debt sent tremors through global financial markets. Investors and analysts worried that a Dubai debt default could set back a global financial recovery. In Lexington, the news spooked the microeconomy of commercial Thoroughbred breeding, too.

Dubai, of course, is ruled by the Thoroughbred industry's biggest buyer: Sheikh Mohammed al-Maktoum. In the last decade, he has spent more than a half-billion dollars at public auctions.

That doesn't include his vast expenditures in the private market, particularly for stallion prospects. In 2007, he was believed to have spent close to $100 million for Street Sense, Hard Spun, and Any Given Saturday. It also does not factor in large purchases such as Australia's Woodlands Stud and its bloodstock for $453 million in 2008; the private deal for Stonerside Farm's complete assets in Paris, Ky., the same year; or the $17.5 million acquisition of Stonerside's former training center and farm in Saratoga Springs, N.Y., in 2007. Maktoum's reach extends to America's far-flung Fasig-Tipton auction house, which Dubai-based Synergy purchased in 2008. Synergy's chief is a close associate of Maktoum.

Fasig-Tipton CEO Boyd Browning said Friday that it's business as usual there and that projects are moving ahead as planned.

Nevertheless, a sneeze in Dubai theoretically could result in the flu for American Thoroughbred sellers. But does the emirate's economic difficulty bode ill for Maktoum's personal spending? John Ferguson, Maktoum's chief bloodstock adviser, says no.

Ferguson, reached at the Tattersalls December sales, said: "The restructuring of a company in Dubai has nothing to do with Sheikh Mohammed's interests in the horse racing industry. His interest in racing is funded privately, and DP World is a totally separate entity and company.

"Just to prove the point, I'm in Newmarket now, and I bought two horses in the last 20 minutes, so that probably gives you a fair idea."

The port operator DP World, it should be noted, is not part of parent company Dubai World's restructuring. Dubai World owns 77 percent of DP World, regarded by many as the parent company's strongest asset. Its weakest unit appears to be the Nakheel real estate operation, whose ambitious projects included palm-shaped residential islands off Dubai's coast. That project, along with others backed by Dubai World, have felt the brunt of a property bust that cut Dubai real estate values by 50 percent in the last year.

Personal and state finances are difficult to untangle in Dubai's royal family. Dubai World is one of three major corporate entities owned by Dubai's government, and it has been described regularly in financial reports as "Sheikh Mohammed al-Maktoum's investment vehicle." Maktoum's personal control of these state holding companies is clear: The week before Dubai World requested its debt-payment moratorium, Maktoum ousted several board members from the emirate's Investment Corporation of Dubai and brought in family members instead. The move was widely interpreted as appeasing the larger, wealthier emirate of Abu Dhabi, which Dubai hopes will inject $20 billion in funds to help Dubai weather the crisis.

In June, as the property bust halted construction projects across Dubai and foreign workers abandoned their property and fled the emirate rather than face penalties for personal bankruptcy, Forbes estimated that Maktoum's personal wealth had dropped $6 billion, to about $12 billion. Forbes also has estimated that "a substantial portion" of Maktoum's personal wealth derives from government stakes in banking and real estate, as well as aluminum production, in addition to $2 billion from assets he inherited from his late father and an estimated $2.5 billion subsidy the United Arab Emirates provides the Maktoum family.

That should be ample income for Sheikh Mohammed's Thoroughbred interests, but wary Thoroughbred breeders are keeping an eye on the news. Unlike Abu Dhabi, Dubai is not oil rich, relying instead on those struggling financial services and real-estate businesses. The key to Dubai's short-term well- being, analysts say, is Abu Dhabi's willingness to pump more money into Dubai during the crisis.

Dubai's total debt is estimated at about $80 billion, which is between 70 and 80 percent of the emirate's gross domestic product, according to financial reports.

Earlier this month, Maktoum told an economic conference that Dubai will pay its debts and press on with the massive development projects that he hopes will transform the emirate into a financial, sporting, and tourism colossus. Investors are calling for more details of the salvage plan. Thoroughbred breeders, meanwhile, hope Dubai's economic woes won't cause Maktoum to slow his spending. Some speculated that Maktoum's relatively sparse bidding at the recent November sales indicated he either is feeling the pinch or trying to avoid appearing extravagant while seeking aid from Abu Dhabi.

But Ferguson dismisses such speculation.

"We participated in November, we bought foals in November, and so I can absolutely categorically deny that it has anything to do with it," he said.