Dubai World will present a proposal to creditors in March to restructure about $22 billion of debt after its advisers complete valuing the assets of the state- owned company, a person close to the Dubai government said.
The final proposal will be made after consultations with the Abu Dhabi government and the United Arab Emirates’ central bank, said the official today, who declined to be identified because the process is private. The central bank, Abu Dhabi’s government and two commercial banks of the emirate lent $20 billion last year to Dubai’s financial support fund to help state-owned companies during the credit crisis.
“It’s good to see some timeline being finalized,” said Abdul Kadir Hussain, chief executive officer of fund manager Mashreq Capital DIFC Ltd. “We will be able to see how the debt will be restructured” and have clarity on the “future of Dubai, which is being constrained by the debt problem.”
Dubai World, one of the emirate’s three main state-owned business groups, said November 25 it would seek to delay repaying debt until at least May 30. The news sparked the biggest plunge in developing-nation stocks and the steepest increase in emerging-market bond yields over US. Treasuries in four weeks, while the cost to protect against a default by Dubai doubled.
The company said December 1 it wants to alter the terms of about $26 billion of debt, including obligations from Nakheel PJSC, which is building palm tree-shaped islands off the coast of the emirate. Dubai World paid $4.1 billion to settle an Islamic bond from Nakheel on Dec. 14 after Dubai received a $5 billion loan from Abu Dhabi, the UAE emirate that holds about 8 per cent of the world’s proven oil reserves.
A formal standstill agreement is not relevant now as interest payments on Dubai World debt are being met and banks are not hostile to the restructuring process, the person said.
Spokeswomen for Dubai World and the Dubai government’s Department of Finance declined to comment, when contacted by Bloomberg today. Nakheel referred questions to Dubai World.
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“This is certainly positive for both the debt and equity markets, especially the fact that Abu Dhabi and the UAE central bank are involved in the discussion,” said Nish Popat, head of fixed-income at ING Investment Management Dubai Ltd.
All restructuring options are being considered, including swapping Nakheel’s $1.73 billion bonds with new securities, the person said. A graded loan recovery system is also an option, which will allow banks wishing earlier repayment lower recovery on their loans than those who are prepared to wait.
No decision has yet been made on which restructuring option to use, the person said. No proposal on a so-called haircut for banks, which involves lenders accepting less money than what they are owed, or a decision on asset sales can be made until the valuation is completed, the person said.
Dubai World may offer its creditors 60 cents on the dollar after seven years, Zawya Dow Jones reported February 14, citing unidentified people familiar with the plan. A spokeswoman for the emirate that day said neither the government nor Dubai World had made such an offer.
The cost to protect against a default by Dubai on February 15 rose to the highest level since March. The contracts have since fallen 6.7 percent to 607.5 basis points, according to CMA DataVision prices today.
Dubai World and its advisers will attempt to agree on a restructuring plan with its creditors by April 15 so that Nakheel’s bondholders have time to execute a possible exchange of their debt, the person said.
More than 90 banks are owed money by Dubai World. Seven of its biggest creditors, HSBC Holdings Plc, Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc, Standard Chartered Plc, Mitsubishi UFJ Financial Group Inc, Emirates NBD PJSC and Abu Dhabi Commercial Bank PJSC, are negotiating with Dubai World on the restructuring on behalf of the lenders, bankers familiar with the talks have said since December.
Nakheel has two outstanding Islamic bonds, a 3.6 billion- dirham ($980 million) floating-rate note due May 13 and a 2.75 per cent, $750 million sukuk maturing in January 2011.