Dubai: Discussion preceding Dubai World's debt-restructuring plan over the past few weeks focused on a range of options. But with an earlier repayment option, even the banks are taking a possible stake in the indebted firm.
Here are the main issues regarding the next steps in the process.
Why is Dubai World presenting a restructuring plan?
Dubai World, one of the three flagship companies of the Dubai government, invested heavily in the real estate boom which eventually burst in late 2008.
Banks lent easily to Dubai World and its subsidiaries, assuming implicit government backing. After the global financial crisis, refinancing needs soared as banks stopped lending.
In November, Dubai World said it would seek a delay on repaying $26 billion (Dh95.4 billion) in debt, linked to its property units Nakheel and Limitless. The news caused global markets to tumble amid fears that the emirate could no longer service its debt.
Will banks accept the deal?
Any deal seen to offer full repayment is likely to be well-received by creditors. However, the fine print will be key, including the length of any extensions and payment of interest.
It is also likely that banks want to see a change in how Dubai World is run, and while the company is unlikely to welcome creditors taking a seat on board, greater involvement from Abu Dhabi, through a stake option, might be a mutual compromise.
What if banks reject the plan?
Creditors will be wary of rejecting any proposal outright; several international banks have long-standing relationships in the region which they will want to preserve, particularly in light of the Gulf's growth outlook.
Local banks are closely linked to the government, and may have little choice but to accept. Even in the case of a haircut, local banks may end up being re-capitalised to limit damage.
If they reject its offer, creditors will force Dubai World into bankruptcy and a special tribunal related to Dubai World has been set up to hear cases.
Taking Dubai World or its units to court is seen as the least favoured outcome.
Who are Dubai World‘s creditors?
About 97 banks are affected by Dubai World's restructuring, seven of whom — considered the most exposed — have formed an informal coordinating committee.
The committee consists of British banks HSBC, Standard Chartered, RBS and Lloyds, as well as two UAE banks, Emirates NBD and Abu Dhabi Commercial Bank.
Asian lenders are also thought to hold a sizeable proportion of exposure to Dubai World units, and Bank of Tokyo Mitsubishi, a unit of Mitsubishi UFJ Financial Group was added to the informal banks' committee in January.
China Construction Bank, another Asian heavyweight, is also baying for a bigger say in the negotiations.
What happens next?
The next stage in the Dubai World debt-restructuring situation is to negotiate a settlement. The proposals will be poured over by risk committees and by the banks' management and board of directors and negotiations will commence.
