Dubai World in talks with banks to restructure $26 billion of its debt

NEW YORK: Dubai World began talks with banks to restructure $26 billion of debt, including $3.5 billion owed by property unit Nakheel, and said the remainder of its liabilities are on “a stable financial footing.” Debt from subsidiaries including Infinity World Holding, Istithmar World and Ports & Free Zone World will be excluded from the negotiations, Dubai World, one of the emirate’s three main state-related holding companies, said in a statement. The cost to protect Dubai debt against default fell to the lowest since November 25. Dubai’s main equity index dropped 6.6%.

Dubai is seeking to delay payments on less than half its $59 billion of liabilities, easing the potential damage to banks recovering from $1.7 trillion of losses and writedowns from the global crisis. Shares worldwide recovered some of the losses suffered since Dubai announced it would seek a “standstill” agreement on all of Dubai World’s debt.
“Now that they’re saying $26 billion, it reduces some of the panic that built up in the last few days,” said Nick Chamie, an analyst at RBC Capital Markets in Toronto. “This is positive. The market was feeding on its own concern and there were talks of $60 billion debt that would need to be restructured.”

Dubai’s ruler and United Arab Emirates Prime Minister Sheikh Mohammed Bin Rashid Al Maktoum said the world misunderstood the government’s intention when it said state-run holding company Dubai World would renegotiate debt repayments, according to Al Arabiya television on Tuesday.

The debt Dubai World plans to restructure includes about $6 billion of Islamic bonds sold by Nakheel, according to the Dubai World statement on Tuesday. “Initial discussions have commenced with the banks of Dubai World and are proceeding on a constructive basis,” Dubai World said in the statement. “It is envisaged the restructuring will be carried out in an equitable way for the overall benefit of all stakeholders.”

The $26 billion figure “confirms that it’s a relatively minor problem,” said Michael Atkin, who helps oversee $10 billion in fixed-income assets as head of sovereign research at Putnam Investments in Boston. The country’s struggles serve as a “reminder that we’re not yet out of the woods in the global financial system. It raises the issue of what else is out there,” he said.

Royal Bank of Scotland Group was the biggest underwriter of Dubai World loans while HSBC Holdings has the most at risk in the UAE, according to JPMorgan Chase & Co. Banks have begun negotiating with Dubai World because they “are wary of any alternative including calling Dubai World in default,” said Hani Sabra, associate covering the Middle East for New York-based research firm Eurasia Group. Spokespeople for RBS and HSBC declined to comment.

Dubai World has hired Moelis & Co as one of its advisers, replacing Deutsche Bank. Investment bank NM Rothschild & Sons will continue to work on the debt talks alongside Moelis, the advisory firm started by former UBS investment banking president Kenneth Moelis, state-owned Dubai World said.