Dubai: The recent $1 billion (Dh3.67 billion) bond issue by the Dubai Electricity and Water Authority (Dewa), priced at 8.5 per cent, has prompted many banks in the group of Dubai World lenders to demand higher interest on the restructured debt.

"If a prominent government-related entity (GRE) is willing to pay 8.5 per cent on its newly issued debt, there should be some parity in the interest payouts on similar debt obligations," a senior banker from the group of 90-plus lenders told Gulf News yesterday.

Dewa's bond issue was priced at a premium of 595 basis points to US Treasuries and 105 basis points over Dubai sovereign debt.

Many leading banks in the lending group such as Royal Bank of Scotland, HSBC, Abu Dhabi Commercial Bank and Emirates NBD welcomed the restructuring proposal announced by the Dubai government in mid-March.

In an interview to Gulf News last month Stephen Hester, group chief executive of Royal Bank of Scotland Group, said the Dubai World's restructuring of Dh24.8 billion worth of debt was moving in the right direction.

"As one of the lenders to the Dubai World we view the recent debt restructuring offer as a positive development," Hester said.

The proposal to restructure the debts of Dubai World and its subsidiaries included a $9.5 billion injection of new capital by government of Dubai — $1.5 billion for Dubai World $8 billion for Nakheel — through the Dubai Financial Support Fund.

The proposal also included a commitment to fully service Nakheel sukuks maturing in 2011 and 2012.

Secured bank creditors were given the option to roll over and extend maturities on existing facilities with 100 per cent principal repayment at maturity at commercial rates and the unsecured bank creditors would receive new 5-year and 8-year debt securities.

The core committee representing the lenders that include Emirates NBD, Abu Dhabi Commercial Bank, HSBC Holding, Standard Chartered, Lloyds Banking Group and Royal Bank of Scotland Group is expected to complete the negotiations in next two weeks.

Bargaining chip

Market analysts said yesterday that the rate offered by Dewa on its recent bonds has become a strong bargaining chip for bankers in the group of lenders.

However, the banks will have to settle for a lower rate as unlike Dubai World that is going through a debt restructuring, Dewa is monopoly utility provider that has a strong cash flow position.

Nakheel to pay 10%

Nakheel PJSC, the property arm of Dubai World that is restructuring $10.5 billion (Dh59.2 billion) of debt, plans to pay an annual profit of 10 per cent on Islamic bonds it seeks to issue to trade creditors, two people familiar with the proposal have said.

The deal is conditional on trade creditors representing at least 95 per cent of the value of all claims agreeing to the proposal, according to the people who declined to be identified because the plan hasn't been made public.

Nakheel plans to issue the five-year bonds in July and list the securities on Nasdaq Dubai. If trade creditors, including contractors and suppliers, don't accept the terms, they can appeal to a tribunal established last year to resolve Dubai World related disputes, one of the people said.

A spokesman for Dubai World declined to comment when contacted by Bloomberg Wednesday.

Dubai World's debt restructuring plan includes a $9.5 billion injection of new capital by government of Dubai.

— Bloomberg