Dubai Group debt decision seen credit positive

Dubai: The announcement that the Dubai government would not provide guarantees in support of the Dubai Group restructuring is credit positive for Dubai's sovereign credit worthiness, Bank of America Merrill Lynch said in a report on Wednesday. 

"While decreasing contingent liabilities is positive for sovereign creditworthiness and CDS, the immediate impact may be trumped by broader, more laborious, Dubai Inc restructurings and sentiment," Jean-Michel Saliba, an economist with Bank of America Merrill Lynch wrote in a note. However, he added that the decision was broadly shrugged off by the market. 

BoA Merrill Lynch said it believed that Dubai will manage its upcoming 2012 redemptions. 

Dubai Group is seeking to restructure $10 billion ($6 billion in bank loans and $4 billion in inter-company loans, likely in part owed to the Dubai Financial Support Fund), though only $1.8 billion of syndicated loans appear in publicly disclosed data. 

Dubai Group is now reported to be offering maturity extensions of 5 years to secured lenders (owed $3.2 billion) and 8-10 years to partially secured and unsecured lenders (owed $2.8 billion). Interest payments are expected to be resumed once an agreement is reached with banks.