Major step on path to recovery

Dubai: Creditors' acceptance of Dubai World's debt restructuring proposal is a major step forward to boosting investors' confidence in the real estate sector, industry insiders said.

"The acceptance of the deal by Dubai World's creditors is what everyone has been waiting for, it is great news for them, the international market and investor confidence," said Barmak Besharaty, managing director, Almas Corporate Consultancy.

He said the announcement — alongwith property developer Nakheel's sukuk repayment and the Dubai Electricity and Water Authority's (Dewa) recent bond issue being oversubscribed — are creating a string of positive signals that Dubai has a firm grip on its financial situation.

The Dubai World restructuring exercise would also be useful if debt restructuring became necessary at other companies, Besharaty said. "Dubai World could become a test case. Next, attention is likely to shift to tackle any necessary action [at other entities]."

Saud Masoud, head of research and senior real estate analyst at UBS in Dubai, sounded a note of caution. "The agreement is just an initial one and there are still many details to be sorted out, which needs to be done as quickly as possible.

"If negotiations are dragged on for too long, then the market will increasingly suffer given the oversupply [of housing] and challenging financing, thereby leading to further price declines and denting broader investor confidence. Dubai World is more about revival of the Dubai story."

Besharaty also cautioned that the latest deal is no magic wand to immediately lift the real estate and construction sectors out of the doldrums.

"Arabtec was owed the largest chunk and has accepted Nakheel's offer. But just like other smaller and foreign contractors it will have to go through the pain until they gradually get paid."

Nakheel met only this week with the Contractors Association to discuss the details of paying its creditors in the industry 40 per cent in cash and 60 per cent in tradable security, carrying a 10 per cent annual return. But 65 per cent of all claimants need to agree (50 per cent have up to now) to release the first cash payment.

The acceptance of the Dubai World agreement is sending ripples of relief and the right signs to increase confidence in the market, said Imad Al Jamal, an expert in mediation and arbitration, in his capacity as vice-chairman of the Higher Technical Consultative Committee and vice-chairman UAE Branch at the Contractors Association.

"It is about time that everyone gets down to discussing the details. Contractors are certainly more confident and relieved now and hopefully the private sector, including the developers which ceased payments will get a boost - more money in the kitty from banks lending for example - because of the Dubai World agreement."

Al Jamal doesn't see stalled construction projects moving again immediately, but rather doing so by year-end.