United Arab Emirates’ (UAE’s) banks may need to set aside as much as 20 per cent of their loans to state-owned Dubai World to cover losses after it announced a $23.5 billion debt restructuring, Moody’s Investors Service said.
Losses as a result of the new debt terms “will be manageable and within a range of 10 to 20 per cent on average for the exposed banks,” John Tofarides, a bank analyst at Moody’s said in a phone interview from Dubai today. Moody’s estimates the Dubai World restructuring will wipe out between 6 per cent and 12 per cent of the banks’ regulatory capital, he said.
Dubai World, the holding company whose Nakheel PJSC real-estate unit is building palm-tree shaped islands off the emirate’s coast, said May 20 it reached an agreement with its main creditor group to restructure $14.4 billion of bank debt and $8.9 billion of government liabilities as it seeks to resolve a debt crisis that roiled global markets last year.
It said banks would be paid $4.4 billion in five years and another $10 billion over eight years at below-market interest rates. Moody’s rates the largest 13 of the 51 banks operating in UAE, which together represent 85 per cent of the market capitalisation of lenders there.
