Dubai unveils debt restructuring

Dubai unveils debt restructuring
By Simeon Kerr in Dubai and Robin Wigglesworth and Andrew England in Abu Dhabi
Copyright The Financial Times Limited 2010
Published: March 25 2010 08:26 | Last updated: March 25 2010 11:16
http://www.ft.com/cms/s/0/d74e16b8-37e3-11df-9e8e-00144feabdc0.html


Dubai announced a restructuring proposal for troubled conglomerate Dubai World on Thursday, including a commitment to pump $9.5bn into the company and Nakheel , its development arm.

The government, which said the plan would take several months to implement through talks with creditors, will fund the new business plan with the $5.7bn left over from the $10bn bail-out loans from Abu Dhabi last year, and the remainder from internal government resources.

A government spokesman said there were no plans to raise additional debt to fund the plan, but sales of non-core assets remained part of the group’s strategy.

“The holding company has a number of assets which were acquired with a view to be sold over time when value is good for Dubai World,” said one government adviser. “There will be no firesales.”

Dubai World will receive a $1.5bn cash injection from the government to cover working capital and interest payments, with the $8.9bn of government funding and claims turning into equity in the government-owned business, thereby subordinating the debt to that of other creditors.

Non-government creditors will receive 100 per cent of their claims – which the company said amounted to $14.2bn at the end of last year – through the issuance of two new tranches of debt with five and eight-year maturities.

One person close to the talks said the level of interest to be paid to Dubai World’s bank creditors is to remain under negotiation.

“It’s as good as it’s going to get in the circumstances,” one banker said of the package. “The acid test will be whether they can sell it to the other 90-odd creditors. The question is: what if some of the other creditors say no?”

Initial market reaction was however positive. The Dubai Financial Market closed up 4.3 per cent while the Abu Dhabi bourse rose 1.1 per cent, according to Zawya, a data provider.

“It’s fantastic news,” said another senior international banker based in Dubai. “The banks will fall in line with this, as Dubai has clearly communicated that this is the final offer.

“Dubai’s credibility will remain under question, as they could have handled it a lot better, but attitudes to Gulf credit will get a lot better now,” the banker said.

Nakheel bonds due later this year rallied from 70 cents in the dollar before the announcement to 92 cents.

The government will inject $8bn into Nakheel, which was hit hard by over-expansion ahead of the real estate crash in 2008. The outstanding Nakheel 2010 and 2011 sukuks, or Islamic bonds, would be repaid as long as the proposal is agreed.

Nakheel said it would pay off all creditors over time and focus on completing near term projects, which would be communicated to customers.

This would “have a significant direct impact on the construction and real estate sectors, and the wider economy”, the statement said.

The government’s $1.2bn claim on Nakheel will also be converted into equity, allowing creditors to rank ahead of the government.

But secured financial creditors will have their loans and interest rolled over, while unsecured creditors will receive a new debt facility.

The Dubai World Tribunal remains in place to protect the companies, shareholders and stakeholders, the government warned, adding that it remained willing to use the tribunal to push through the plan if only a minority of creditors disagreed.

The tribunal, based at the Dubai International Financial Centre courts, was set up to implement a restructuring plan and, in a worst case scenario, oversee a liquidation.

Trade creditors will receive 40 per cent of their agreed claims in cash with the remainder in a publicly traded security, which the company says it believes will meet full repayment over five years. All creditors will receive a Dh500,000 ($136,000) payment soon, which will meet half of existing contractors, the government said.

Customers who have invested in Nakheel’s developments that have not been completed will be given the option of transferring their current payments to projects closer to completion at market rates.