Dubai World Restructuring Underway

Dubai shocked creditors when it decided to postpone interest and principal payments in November of 2009.  Since then, Moelis & Co. has been working with creditors to settle on repayment.  Some creditors still expect full repayment, while others would take a haircut for immediate cash. Certain assets have been “ring-fenced,” such as DP World’s port business, which may list in the UK.  By ring-fencing the asset, it will not be available for creditors.

Amran Abocar of Reuters writes: “Dubai World could put its plan to a creditor coordinating committee that includes HSBC and Standard Chartered in London this week but was being delayed by efforts to value the assets of its Nakheel unit, builder of Dubai’s palm-shaped islands, bankers said.

While some of the 97 creditors expect to see the option of full repayment on the table, others are willing to take a “haircut” in order to get some money back fast, bankers said.

“We are not willing to take a big haircut … in that case we would go back to the committee to see what our options are,” said one Gulf-based banker, who asked not to be named. “Full repayment should be an option, timing is less of an issue.”

Dubai World shocked global markets in November, when it requested a standstill on its debt repayments and said it would come up with a restructuring plan.

Dubai has said the plan would be “fair” but a plan could propose extending debt maturities and Dow Jones said creditors may get as little as 60 cents on the dollar.

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“There are those banks who want to have the money immediately and take a haircut and those who can wait for a longer time,” said one banker at an Asian lender which is among the creditors.

“If one of the lenders doesn’t accept both options, they can go for a legal case. It’s in the interest of the bankers and the company there is some agreement.”

Despite those divisions, hopes of progress in the talks cut the cost of insuring Dubai’s debt against default and boosted Nakheel’s 2011 bond on Monday.

Dubai’s five-year credit default swaps (CDS) fell about 20 basis points to 488.7, their lowest level since Jan 28. They had risen as high as 654 basis points on February 15 after a report that Dubai World was mulling a two-part deal, including one that may repay lenders 60 percent of the outstanding debt over a period of seven years.

Dubai’s stock market index rose over 1 percent on Monday on hopes of progress in the debt negotiations.

“Investors are front-running a possible uptrend that could follow a Dubai World announcement,” says Mohammed Yasin, Shuaa Securities chief executive.

“This should continue for a while. Volumes are low, but it’s not that there’s no money around, just that it is waiting for an outcome (on Dubai World) to provide some clarity.”

RING-FENCING ASSETS

Dubai World has ringfenced key assets from its restructuring plan including ports operator DP World, which has said it may seek a secondary listing on the London Stock Exchange.

A report on Sunday said DP World may offer new shares to shareholders and Dubai World could sell part of its 77 percent stake as it bids to become part of the FTSE 100 share index.

The move would help boost DP World’s liquidity and raise the stock’s free float shares to 35 percent.

Bankers said Dubai World’s debt restructuring plan would not include a proposal to raise capital or contain any surprises like Abu Dhabi’s last-minute bailout in December, which allowed Dubai to repay Nakheel’s maturing Islamic bond.

“It’s more of a local issue than a global issue now because the news is out, people know they want to restructure,” said a European fund manager, who used to hold Dubai World debt. “Given that they paid out on Nakheel in December, creditors will be looking for full payment on the other bonds.”

But a source familiar with the matter said last month that the Nakheel bond maturing in May was unlikely to be repaid.

But Dubai’s debt crisis is still causing ripples around the region. Moody’s downgraded seven Abu Dhabi government-related entities late last week, due to the absence of an explicit, formal guarantee of government backing.

Abu Dhabi, the wealthiest emirate in the seven-member United Arab Emirates federation and home to most its oil, dismissed the downgrade, saying it had the money to meet its commitments to the firms, especially three which are wholly state-owned.

Major creditors to Dubai World also include Bank of Tokyo-Mitsubishi, a unit of Mitsubishi UFJ Financial Group, Lloyds and Royal Bank of Scotland, Emirates NBD and Abu Dhabi Commercial Bank.”

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