Palm Jumeirah developed by Dubai World. There is talk around Shoreline Apartments over possible beach access charge Image Credit: EPA

Dubai: Government-owned conglomerate Dubai World said on Thursday “headline economic terms” have been agreed in principle with its financial creditors on the restructuring of $23.5 billion of liabilities.

The agreement was reached between the Coordinating Committee (CoCom) representing 60 per cent of Dubai World’s creditors and the Government of Dubai.

Since Dubai World presented its restructuring proposal on March 24, the company has refined the proposal to “modestly enhance” one component of the repayment package, it said in a statement.

Aidan Birkett, Chief Restructuring Officer of Dubai World, said: “This is an important milestone and reflects our efforts to achieve the best possible solution for all stakeholders. The proposal puts the company on a sound financial footing and reflects the continued support of the Government of Dubai and its lenders.”

The deal, which requires no new financial support from the Dubai Government, awaits approval from banks outside the CoCom, Dubai World said.

Analysts have welcomed the agreement saying it clears the way for credit flow to resume. Stock markets are expected to cheer the deal with a substantial rise in stock values.

After restructuring, Dubai World’s financial indebtedness will be approximately $14.4 billion in two maturities – Tranche A of $4.4 billion payable in five years and Tranche B of $10 billion in eight years, the company said.

Each lender will receive a rateable portion of each tranche and will be able to select options for its Tranche B participations.

Creditors can opt for a higher payment in kind (PIK) coupon, a higher government shortfall guarantee, or get a higher cash and PIK coupon.

The first tranche offers a five-year maturity and a 1 per cent cash interest but no PIK or shortfall guarantee. The second tranche offers 1 per cent interest, and varying PIK rates depending on the options lenders choose.

The PIK rates range from 1.5 to 2.5 per cent in certain years of the maturity. Banks will be entitled to elect different options for which they are eligible for different parts of their debt, also depending on the currency in which they have made their loans to Dubai World.

The final proposal has not changed in its fundamentals from the terms announced on March 25, except for an increase in the PIK.

"The likely negative impact on the UAE banking system should be manageable without additional support,” Fitch Ratings said about the original terms of the deal. “[It] appear to be a more favourable solution than the banks may have feared in the last few months."

The International Monetary Fund (IMF) praised the Dubai Government for offering "a fair and equitable solution for all stakeholders".

"We support the authorities intention to find a fair and equitable solution for all stakeholders," the IMF said in a statement.

"A satisfactory conclusion of this process will pave the way for improving overall credit conditions, the investment climate, and economic activity in Dubai and the UAE in general.”