Dubai will support Dubai World’s debt restructuring with $9.5 billion as the state-owned holding company asks creditors to wait up to eight years to get all their money back.
The additional funds double to $20 billion the amount the government paid to the emirate’s holding company. Dubai World said in November it would seek to delay repaying debt until May, sparking a plunge in developing-nation stocks and doubling the cost to protect against a default by Dubai.
“This is certainly a step in the right direction toward resolving Dubai’s structural issues,” said Ali Taqi, portfolio manager at A/T Capital Management in Dubai. Shares jumped the most in a quarter and the cost of protecting against a default by the emirate dropped.
Dubai, the second biggest of seven states that make up the United Arab Emirates, and its state-owned companies ran up $80 billion in debt until the end of 2008 to transform the sheikhdom into a tourism, trade and financial hub. The International Monetary Fund estimates Dubai has outstanding loans of $109.3 billion. The global credit crunch in late 2008 hampered Dubai-based companies’ ability to raise loans, prompting a 50 per cent plunge in property prices.
The emirate is not alone in struggling to finance itself after the worst financial turmoil since the Great Depression. Greece is engulfed in a fiscal crisis as it tries to cut the largest budget deficit in the European Union. Advanced economies face “acute” challenges in tackling debt in coming years, with the US and UK among those that will have debt of more than 100 per cent of gross domestic product by 2014, IMF First Deputy Managing Director John Lipsky said March 21.
Dubai World is seeking to renegotiate $23.5 billion in debt with creditors, it said in an e-mailed statement today. The company said it owed $14.2 billion to lenders other than the government at the end of 2009.
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The restructuring process is “expected to take several months to implement” and subject to approval by creditors, the emirate’s Supreme Fiscal Committee chairman, Sheikh Ahmed Bin Saeed Al Maktoum said in a statement today.
The government will supply Dubai World with $1.5 billion to support its business plan and convert $8.9 billion in debt to equity, Sheikh Ahmed said. Property unit Nakheel PJSC will receive $8 billion in funding and $1.2 billion by converting government debt to equity.