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LAS VEGAS-Dubai World, the investment arm of the government of Dubai said Monday it has filed a lawsuit against MGM Mirage in Delaware Chancery Court “to protect its rights and the best interests of the CityCenter project,” the company said in a statement.

The lawsuit alleges that MGM’s admissions in its annual report filed with the SEC last week constitute a breach of the CityCenter joint venture agreement and puts the multi-billion-dollar mixed-use development project at risk. Locally headquartered, publicly held MGM Mirage did not comment on Monday.

In its annual report MGM Mirage says that it “cannot provide assurance” that its business would generate sufficient cash flow–or that future borrowings would be available—to pay its indebtedness or to fund its other liquidity needs and that, as a result, there is “substantial doubt” about the company’s ability to continue as a going concern.

In its court filing today, Dubai World subsidiary Infinity World asked for a declaratory judgment and other measures that would relieve Infinity World of its obligations under the joint venture agreement resulting from MGM’s breach. MGM and Dubai World have $500 million to fund before a $1.8 billion bank facility becomes available in May, allowing them to complete and open the project.

CityCenter is a mixed-use luxury residential, resort and retail complex being developed by MGM on 67 acres between the Bellagio and Monte Carlo resorts on the Las Vegas Strip. It is owned by CityCenter Holdings LLC, a joint venture equally owned by MGM and Infinity World. The complex, scheduled to open in late 2009, has been under construction since 2005.

Dubai World said MGM’s disclosures in its annual report have left it no other option but to act to protect its investment and the future of CityCenter. The current path of the project is simply unsustainable given our partner’s financial troubles, it said.

The company also accused MGM Mirage of mismanaging the project, “resulting in costs significantly over budget despite downsizing certain of the facilities,” it said. “This has caused Infinity World to make capital contributions far in excess of the levels originally estimated by MGM.”

Dubai World, which also owns approximately 9% of the company’s stock, said it is essentially being asked to pay significantly more and getting less, with only uncertainty about MGM’s future. Specifically, the company says MGM provided an estimate in August 2007 of $7.488 billion to complete CityCenter but has since increased that estimate by approximately $1.3 billion, to $8.8 billion. In addition, it says MGM anticipated a financing package of $5 billion, subsequently revised it to $3 billion, and then ultimately raised only $1.8 billion. Infinity World’s contributions to CityCenter to date have equaled approximately $4.3 billion.

“Ultimately, Dubai World continues to believe that the CityCenter project has enormous value and will eventually reap tremendous benefits for the Las Vegas community and its investors,” the company said in a prepared statement, adding that it is committed to working with MGM and lenders to resolve these issues in an orderly way. “Ensuring completion of the project on acceptable terms is why Dubai World is taking the actions it is announcing today.”

Dubai World’s announcement did not detail the mismanagement claim. In mid-January, defects were revealed in the construction of the planned Harmon Hotel and Residences such that the top 21 floors of the building will not be used for 200 condominium units as intended.

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