Dubai World in deal to rejig $23.5-bn debt

DUBAI: Dubai World, the state-owned holding company, reached an agreement with creditors to restructure $23.5 billion of liabilities as it seeks to resolve a debt crisis that roiled global markets last year.

Dubai World will pay $4.4 billion of the loans in five years and the remaining $10 billion over eight years, the company said in an e-mailed statement on Thursday. Dubai’s government, which pledged $1.5 billion in March for the restructuring, will convert $8.9 billion of its loans to Dubai World into equity.

“Putting closure on the Dubai World issue is a good thing, but we need to get clarity on Dubai and global sovereign debt in order for a true turnaround to unfold,” said Sameh Hassan, director of research at Rasmala Investment Bank in Dubai.

Dubai World, one of the emirate’s three main state-owned business groups, said on November 25 that it would seek to delay repaying loans until at least May 30. The announcement sparked a plunge in developing-nation stocks and the largest increase in emerging-market bond yields over US Treasuries in four weeks. The cost to protect against a default by Dubai doubled.

Dubai DFM General Index rose for a third time this week, gaining 0.6 per cent to 1,695.35 at 1:25 p.m. Credit default swaps, or the cost to protect Dubai government debt, fell three basis points to 467 basis points at 12:10 p.m. in Dubai, according to prices provided by CMA DataVision in London.

The global credit crunch has battered Dubai’s real-estate market and left the emirate’s companies unable to raise loans to repay debt.

Property prices have fallen 50 per cent in the city as banks reduced mortgage lending and speculators fled.
In Thursday’s proposal, banks have been offered various combinations of interest rates and principal repayment options depending on whether they lent in dollars or dirhams, Dubai World said.

Banks will be paid 1 per cent interest on the loans maturing in five years. Lenders have three options under the eight-year maturities, with at least 1 per cent interest and varying additional rates from 1.5 per cent to 2.5 per cent at maturity. Two of these options also have shortfall guarantees.

“It’s fair to say terms of the deal are not commercially attractive, but it’s better than the other option, which is not to repay at all,” said Paul Cooper, managing director at Sarasin-Alpen & Partners Ltd. in Dubai. “The increase in clarity will serve to ease the lending restriction in the region.”

Seeking Agreement

The proposal requires the agreement of the rest of Dubai World’s creditors. Dubai World’s bank coordination committee, which is negotiating with the company on behalf of more than 90 lenders, represents about 60 per cent of its bank loans, according to the statement.

The committee comprises Emirates NBD PJSC and Abu Dhabi Commercial Bank PJSC from the United Arab Emirates and foreign lenders, Royal Bank of Scotland Group Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Standard Chartered Plc and Bank of Tokyo-Mitsubishi UFJ Ltd.

This is an “important milestone,” Sheikh Ahmed Bin Saeed Al Maktoum, chairman of Dubai’s Supreme Fiscal Committee said in an e-mailed statement today. This is “the result of considerable efforts from a large number of stakeholders who all share a common interest in Dubai’s future,” he said.

The next step is to complete documentation and present it to about 70 banks in “the middle or end of June,” Aidan Birkett, Dubai World’s chief restructuring officer, said in a phone interview today. “I am confident this will now go through.”

Diverse Group

Dubai World controls DP World Ltd., the world’s fourth- biggest port operator, real-estate developer Nakheel PJSC, private equity investor Istithmar World PJSC and Economic Zones World, an operator of business parks such as Jebel Ali Free Zone. Istithmar bought New York luxury retailer Barneys in 2007 for $942.3 million, while Dubai World acquired a $5.1 billion stake in U.S. casino company MGM Mirage in 2008.

“The biggest risk was to get people agree on a proposal and the fact that has been done is positive,” said Abdul Kadir Hussain, chief executive officer of Mashreq Capital DIFC Ltd. in Dubai. “Still, Dubai credits will continue to be trading at wider yields than other regional bonds because investors want to see how Dubai will be able to reduce its debt load.”

As part of today’s deal banks were offered a shortfall guarantee of up to $4 billion, money the government will provide if proceeds from Dubai World’s asset sales isn’t enough to repay debt, the statement said. Banks, who have lent in dollars, also have an option to get a share of up to $1 billion of profit from Dubai World’s asset sales, the statement said.

Nakheel Agreement

The Dubai government and its state-owned companies have racked up $109.3 billion of debt, according to International Monetary Fund estimates, as the emirate sought to transform itself into a tourism, trade and financial services hub. About $15.5 billion of that is due this year, the IMF said.

Nakheel, which is seeking to restructure $10.5 billion of loans and creditor liabilities, said earlier this month it had reached agreement with trade creditors for more than 50 per cent of the claims, or 6 billion dirhams ($1.6 billion). Its trade creditors would be offered 100 per cent recovery of their claims — 40 per cent through a cash payment and 60 per cent in the form of a publicly tradable sukuk, paying 10 per cent return annually.

Dubai Holding

Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate’s businesses may need help making payments, Morgan Stanley said in a report in December. Dubai Holding LLC, Dubai Holding Commercial Operations Group LLC, Borse Dubai Ltd. and Dubai Sukuk Center Ltd. may join Dubai World in restructuring debt, Morgan Stanley said.

Dubai Holding LLC and its units owe banks $12 billion and have begun talks to roll over some loans, a person with knowledge of the matter said May 10. Almost three-fourths of the loans were to Dubai Holding’s two investment companies, Dubai Group LLC and Dubai International Capital LLC, said the person. The companies are exploring refinancing options for their debt including extending maturities, the person said.