Dubai World tables $26b debt restructuring proposal

Dubai: Dubai World on Thursday hammered out a $26 billion debt-restructuring proposal after receiving a commitment of $9.5 billion in ‘new funding' from the Dubai Government.

Excluding government debt of about $10 billion, the proposal offers to pay off in full, maturing Nakheel sukuks during 2010 and 2011 and roll over $14.2 billion (Dh52.1 billion) worth of debt to creditors, by issuance of two tranches with a 5-year and 8-year year maturity, the company said.

"This proposal represents the best possible solution for all stakeholders. It follows extensive discussions with our creditors, a thorough review of Dubai World's businesses and significant financial support from the [Dubai] government," Aidan Birkett, chief restructuring officer of Dubai World, said in a statement.

"It offers the company a strong future and the opportunity to maximise the value of its assets over the medium to long term."

Of the $9.5 billion government fund provided under Dubai Financial Support Fund (DFSF), Shaikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, said that $5.7 billion remained on a loan provided by Abu Dhabi last year, while the rest will come from internal Dubai Government resources.

Last December, Dubai World paid off Nakheel's $4.1 billion bond in full after the Abu Dhabi Government offered $5 billion in support funds.

Long-awaited proposal

Dubai World has been in discussion with creditors since it requested a debt standstill last November 25. The company will be able to move ahead with the long-awaited proposal upon creditors approval.

Mohammad Shakeel, a former economist at the Economist Intelligence Unit, said market sentiment had shot up and that the atmosphere was one of optimism. He also pointed to rising Nakheel bonds.

"[We are] not sure how long that will last, but the announcement that Dubai World and Nakheel will repay in full and that the Dubai Government will provide additional support was not only surprising but has been received very well," Shakeel said.

The credits include the fact that 97 banks are represented by the Coordinating Committee of seven banks that comprises British banks HSBC, Standard Chartered, RBS and Lloyds; as well as two UAE banks, Emirates NBD and Abu Dhabi Commercial Bank; and also the Bank of Tokyo Mitsubishi.

The restructuring deal proposes that bank creditors be paid 100 per cent of interest or profit through the maturity extension based on Emirates or London Interbank Offered Rate (Eibor or Libor).

Trade creditors, suppliers and contractors of Dubai World would be offered full recovery with a 40 per cent cash repayment and 60 per cent in the form of publicly traded security, Dubai World said.

In addition to its new fin-ancial support provided to Nakheel, the DFSF has proposed that $1.2 billion of debt that had previously been loaned to Nakheel be turned into equity.

Under the terms of the arrangement, the property arm of Dubai World will now be fully owned by the Dubai Government.

Creditors were earlier expecting a haircut — about 60 per cent repayment, without any government guarantees. The proposal has brought positive sentiment to the industry and markets, with the Dubai bourse jumping 4.31 per cent yesterday after the announcement.

"What we got was better than expected. We may not have gotten an explicit guarantee, but we got an implicit government support with $9.5 billion," said Haissam Arabi, chief executive and fund manager of GulfMENA Alternative Investments.

"It's a plus with the government being a strategic shareholder this way. There is no doubt that the Dubai government support is behind [Dubai World] anymore."

Further discussions

In the coming weeks, Dubai World will hold discussions with creditors to agreet on the terms.

The restructuring process is expected to take several months to implement, while the tribunal process remains available to protect the companies, their creditors and other stakeholders, the government said in a statement.

Joe Kawkabani, managing director of equities and asset management at Algebra Capital said: "It is obviously more positive than the expectations. Solving [the issue was] important for the economy and Dubai in general. The deal was in the interest of all banks and the government."

The Dubai Government said it believes that once the process is complete, the most significant restructuring would be behind them.