Thursday, March 25, 2010

Dubai World set to present US$26b debt plan: sources

Debt-laden Dubai World will present plans to restructure its US$26 billion debt pile to creditors this week, with details due to emerge yesterday, sources familiar with the talks told Reuters.

The conglomerate, which has been locked in talks with its creditors, will discuss how it plans to repay its commitments with an informal bank panel, which represents 97 creditors to the state-owned conglomerate, in Dubai.

‘People will be looking for anything not already priced in (the market) such as a government guarantee,’ said Robert McKinnon, ASAS Capital’s chief investment officer.

The debt is linked mainly to Dubai World’s property units, Nakheel and Limitless World. The company ringfenced other key assets, such as ports operator DP World, from the restructuring.

Talks have tested the tolerance and positions of both sides with early reports floated about a ‘haircut’, or loss, as large as 40 per cent, while bankers have countered with demands for nothing less than full repayment.

A final proposal on the debt could involve tranches with different repayment profiles, one with a repayment over three to five years, with the principal discounted, and another with repayment over seven to nine years with no discount.

The eventual proposal will centre on the extension of maturities with low or zero interest, and the option of an early exit at a discount or eventual repayment over a longer period of time.

‘We now expect much better scenarios, an extension of the maturity date giving domestic banks some breath,’ said Rami Sidani, head of Mena at Schroders Investments.

He said that a ‘haircut’ would have had a ’severe impact’ on domestic banks and leave them in need of a capital injection from the UAE central bank. Moody’s estimated local banks have US$15 billion in exposure to Dubai World.

The quality of the offer rests with Abu Dhabi, Dubai’s wealthier and larger neighbour, which bailed the emirate out late last year.

‘It looks very much like the main scenario of Abu Dhabi bailout is taking shape,’ said David Butter, director for Middle East and North Africa, Economist Intelligence Unit.

‘I doubt that we will ever be able to get an authoritative figure on it, but the bottom line is that Abu Dhabi seems to have decided that it has to pay whatever is necessary to avoid serious reputational damage for the UAE as a whole.’

A Dubai government spokeswoman said on Tuesday that meetings with the core creditor committee, known as CoCom, were part of ‘an ongoing dialogue related to the restructuring process’.

The spokeswoman said that Dubai remains on track to present a formal proposal to creditors this month.

The panel includes Standard Chartered, HSBC, Lloyds, Royal Bank of Scotland, Emirates NBD and Abu Dhabi Commercial Bank, which, combined, are believed to have two-thirds of the total exposure.

Dubai said in November that it would ask creditors to delay repayment on US$26 billion in debt linked to its flagship conglomerate Dubai World, sending shockwaves through markets.

The last-minute lifeline from Abu Dhabi helped the glitzy Gulf Arab emirate, known for its tax free earnings and easygoing lifestyle, avert default on a US$4.1 billion Islamic bond linked to Nakheel.

‘For creditors, it would be music to their ears to know that Abu Dhabi is involved in any restructuring plan,’ said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.

Source: Business Times, 25 Mar 2010

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