Dubai World Sees $23.5 Billion Restructuring in Months After Bank Meeting

Dubai World, the state-owned company seeking to renegotiate the terms on $23.5 billion of debt, said it expects to complete the restructuring process in the “coming months” after a meeting with its creditors in the emirate today.

“As is customary at this stage of the process, this was an informational session and no resolution was sought in the meeting,” Dubai World said in an e-mailed statement. “Creditor banks will now have the opportunity to review the information provided before responding to the proposal. The company expects to complete the restructuring over the coming months.”

Dubai World made the presentation to about 70 banks at the Atlantis hotel after a group of its seven biggest lenders said May 20 they agreed to its broad terms. The terms accepted by the main banks were unchanged when presented to other creditors today, two people who attended the presentation said.

Dubai World, the holding company whose real-estate unit Nakheel PJSC is building palm-shaped islands off the emirate’s coast, and its main creditor banks agreed in May to alter the terms on $14.4 billion of bank loans and $8.9 billion of government liabilities to resolve a 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 supported by assets sales.

Asset Sales

Dubai World presented forecasts of cash flows for the group today and said it will sell assets if operating cash flows are insufficient to repay debt, a banker who attended the presentation said. It didn’t reveal which assets it would sell when, and said that decision would depend on when each asset’s price recovers and by how much, the banker said, declining to be identified because the discussion was private.

Dubai World and its consultants, including Chief Restructuring Officer Aidan Birkett as well as the bank coordination committee, said in their presentations that the debt restructuring plan outlined on May 20 was the best option available for banks to ensure loan repayments, said the banker.

A Dubai World spokesman declined to comment.

Dubai World controls DP World Ltd., the world’s fourth- biggest port operator, private equity firm Istithmar World PJSC, and Economic Zones World, an operator of business parks such as Jebel Ali Free Zone. Istithmar bought New York luxury retailer Barneys in 2007 for $942.3 million, while Dubai World acquired a $5.1 billion stake in U.S. casino company MGM Mirage in 2008.

Interest Rates

In the May 20 proposal, Dubai World offered banks various combinations of interest rates and principal repayment options depending on whether they lent in dollars or dirhams. Banks will be paid 1 percent interest on the loans maturing in five years. Lenders have three options under the eight-year maturities, with at least 1 percent interest over the life of the loan and varying additional rates from 1.5 percent to 2.5 percent at maturity. Two of these options also have shortfall guarantees.

“We don’t like it -- the pricing is low,” said Suresh T. Vaidyanathan, head of operations at Bahrain-based Alubaf Arab International Bank BSC. “They said you take it as it is, otherwise we will go to liquidation. They made a presentation on cash flows. There is excess cash and there will be a big payment in kind” after eight years when the loan matures, he said.

A special court set up by the Dubai government in December to oversee the financial restructuring of Dubai World can enforce the agreement if the proposal receives the support of banks representing more than two thirds of the value of loans.

Dubai’s Debt

Dubai and its state-owned companies have racked up $109.3 billion of debt, according to International Monetary Fund estimates, as the emirate transformed itself into a tourism, trade and financial services hub to diversify its economy. About $15.5 billion of that is due this year, the IMF said.

Dubai World’s bank coordination committee, which negotiated with the company on behalf of the other lenders, represents about 60 percent of its bank loans, it said in May. The committee comprises local lenders Emirates NBD PJSC and Abu Dhabi Commercial Bank PJSC and foreign lenders, Royal Bank of Scotland Group Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Standard Chartered Plc and Bank of Tokyo-Mitsubishi UFJ Ltd.

Nakheel, which held a separate meeting with its lenders July 14, said a group of its creditors negotiating on behalf of banks “unanimously supported” a proposal on altering the terms on $10.5 billion of loans and unpaid bills. Nakheel expects to complete the restricting over the “coming months,” it said.

Nakheel plans to offer creditor banks an interest rate of 4 percentage points more than benchmark rates on new loans as part of the debt restructuring, two bankers with knowledge of the plan said July 13. In return, lenders would agree to extend the life of the loans by five years, they said.

To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net Ayesha Daya at adaya1@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.