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Dubai World $14 billion debt deal may be hit by Greek crisis

2010-05-10

DUBAI (Zawya Dow Jones)--Dubai World"s talks with creditors to restructure over$14 billion of debt may be complicated by the debt crisis in Greece as banks find it harder to agree on the terms outlined by the government-owned conglomerate, analysts said Sunday.  "The Greece dynamic is more of heightened risk aversion perhaps globally," said Saud Masud, head of research and senior real estate analyst at UBS in Dubai. "Banks may find it increasingly challenging to settle on initial terms set forth by Dubai World, which already appear tough to digest." Dubai is running out of time to agree a deal with creditors after it unveiled a $9.5 billion rescue plan for Dubai World and its property unit Nakheel in March. Creditors to Dubai World are still in talks about the interest rate offer for the new debt issued under the plan. The cost of insuring Dubai"s debt measured bycredit default swaps, or CDS, closed Friday 464.8 points, up from 415 points on April 30. By comparison, spreads on gas-rich Qatar"s CDS rose to 90 basis points from 80 points in that time. Sheikh Ahmed bin Saeed Al Maktoum, chairman of Dubai"s supreme fiscal committee who is leading negotiations, said in an interview with CNN this weekend that a deal could be finalized within two weeks, but concerns over Greece could mean that banks push for a more favorable deal. The deal covers $14.2 billion of debt that Dubai World owes to creditors besides the government. The Dubai government, through the Dubai Financial Support Fund, has proposed to convert $8.9 billion of debt claims into equity, subordinating its claims to other creditors, Dubai World said in March.  A banker familiar with the Dubai World debt talks told Zawya Dow Jones last month that Dubai World creditors are being offered a 1% annual cash interest and a further 1% annual payment in kind. A spokesperson for Dubai World declined to comment Sunday on whether a meeting is scheduled this week between Dubai World negotiators and the creditor committee representing over 90 lenders to the conglomerate. HSBC Holdings PLC (HBC), Standard Chartered PLC (STAN.LN) and part U.K. state-owned banks Royal Bank of Scotland Group PLC (RBS.LN) and Lloyds Banking Group PLC (LLOY.LN) are senior participants on the committee. "A 1% interest in this market may be a no-go and could drag the negotiations further especially as sovereign risk perception gets worse before getting better," said Masud of UBS. European Union finance ministers are to meet Sunday to discuss setting up a new stabilisation mechanism to prevent the Greek debt crisis from spreading to other European member states. On Friday, the leaders of the 16 countries that use the single currency approved a EUR110 billion loan package to Greece. Concerns that Europe"s debt crisis could derail the global economic recovery pushed most stock markets in the Gulf region lower Sunday. Dubai"s benchmark stock index pared some intraday losses to end -1.2%, while Abu Dhabi"s market closed down 1.4%.  Analysts also warned that the Greek crisis will make it harder and more expensive for companies in the region to raise funds. "Across the world, including the Gulf Cooperation Council, borrowers now face higher costs if they wish to tap the international financial markets," Saudi-based investment bank Jadwa Investment said in a note Sunday.


 

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