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Financial Times: Dubai World lenders await debt plan during this week

2010-03-08

Dubai World is expected to approach lenders for the first time this week with a suggested proposal for restructuring $22bn of its debts, according to people close to the situation.  The conglomerate has called leading -creditors to London for meetings starting as early as today. Bankers expect the one-on-one meetings to reveal the first details of a formal proposal, which the government has said should be finalized in March. The plan, which may be an initial outline, is expected to offer lenders an option to be repaid over several years but with a "haircut", or to be repaid more over a longer term, potentially with a government guarantee. However, people close to the situation say nothing is certain. Some are concerned that the proposals could lead to a split of the creditor groups, further complicating the process. "There is a real problem [creditors] will fragment into a number of splinter groups," said one person close to talks. The restructuring is expected to involve an injection of fresh funds. International lenders to Dubai World, which borrowed $5.5bn (€4bn, £3.6bn) in syndicated loans, may want to be repaid by the new funds, but local lenders with greater exposure to the impact of losses on Dubai World"s suppliers may prefer that the funds flow to Nakheel and Limitless, Dubai World"s developer subsidiaries. "There is a choice of where the money goes in," the person said. "Creditors of Nakheel are suppliers and local builders that in turn have borrowed from local banks. If they don"t get repaid there could be a multiplier effect." Currently there is one steering committee of banks that represents the interests of lenders to Dubai World that have been in talks with Dubai"s Department of Finance and the company. They include Royal Bank of Scotland, Standard Chartered, HSBC, Lloyds, two United Arab Emirates banks and the Bank of Tokyo Mitsubishi UFJ. There are also informal groups to represent lenders to Limitless and Nakheel. UK banks are thought to have an aggregate $5bn exposure to Dubai World. Nakheel bondholders have already formed a group represented by Ashurst in anticipation of a proposal being tabled. Banks based in the United Arab Emirates have $15bn of exposure to Dubai World, Moody"s estimated in a report. Moody"s said Dubai-based banks were particularly exposed to Dubai state-linked and private companies, some of which might come under stress, potentially triggering "serious repercussions". Bankers say Dubai World"s overall debt burden - including entities outside the restructuring process which involves $22bn in outstanding debts - is about $40bn, rising to almost $60bn with liabilities. Dubai World may sell an additional stake in DP World via an expected listing on the London Stock Exchange with the ports operator - which falls outside the restructuring - raising further funds via a rights issue. Dubai called for a $26bn standstill request on Dubai World"s debts in November, prompting market turmoil and a loan from Abu Dhabi, which was used to pay off a $4.1bn Islamic bond by Nakheel in December.