Dubai World received approval from creditors to alter the terms on $24.9 billion of debt, more than nine months after the state-owned holding company’s proposal to delay repaying loans sent emerging market stocks tumbling.
“This overwhelming support means that the company is well positioned to close the restructuring in the coming weeks,” Dubai World said in an e-mailed statement today. “The proposal puts the company on a sound financial footing.” The formal agreement represents about “99 percent of creditors by number,” and more than “99 percent by value,” according to the statement.
Dubai World and its main creditor banks agreed in May to restructure $14.4 billion of loans and $8.9 billion of government liabilities to resolve a crisis that roiled global markets last year. The company 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.
“This outcome is a success for Dubai World and ultimately for the government as it got a restructuring deal which is less favorable to banks,” said Andre Andrijanovs, an emerging market credit analyst at Exotix Ltd. in London. “I would expect Dubai World would be gradually wound down as it liquidates its assets but not until all of the holding company’s creditors are repaid.”
A Dubai Department of Finance spokeswoman today declined to say who opposed the debt restructuring proposal.
Credit-default swaps tied to Dubai government debt narrowed 2 basis points to 459.6 at 3:20 p.m. in London, after reaching the highest close this year of 627.4 on Feb. 12, according to CMA prices. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The agreement today also “marks the support of the creditors to the separation,” of real-estate developer Nakheel PJSC from Dubai World, Sheikh Ahmad Bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee, said in a separate e-mailed statement today.
Nakheel, the builder of palm tree-shaped islands off Dubai’s coast, said on July 14 a group of creditors unanimously supported a plan on altering the terms on $10.5 billion of loans and unpaid bills. The company expects to pay 40 percent of the money owed to trade creditors in cash and 60 percent through a tradable sukuk, Nakheel said.
“The government of Dubai continues to focus on Nakheel and is pleased with the significant progress achieved by the company to date in discussions with its creditors,” said Sheikh Ahmad.
The yield on the Dubai Department of Finance’s 6.396 percent Islamic notes due in November 2014 dropped 153 basis points, or 1.53 percentage point, to 6.57 percent today, according to Bloomberg composite prices. The yield on Nakheel’s 2.75 percent $750 million Islamic notes due in January 2011 fell 95 basis points to 16.59 percent, composite prices show.
The emirate’s benchmark Dubai Financial Market General Index, down 12 percent so far this year, rose 1.5 percent to 1,592.24 at the close on Sept. 7. United Arab Emirates markets closed on Sept. 8 for a Muslim holiday and will reopen Sept. 13.
Interest on Loans
Nakheel and Dubai World are seeking to renegotiate terms on their debt after the deepest financial crisis since the 1930s roiled the emirate’s real-estate market and left companies unable to raise new funding. Property prices have fallen more than 50 percent in the city state as banks cut mortgage lending.
The government set up a special tribunal in December to help Dubai World’s reorganization that requires the approval of lenders representing two-thirds of the value of the loans for a restructuring proposal to hold.
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.
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 announcement in November last year it would seek to delay repaying loans sparked a plunge in developing- nation stocks and the largest increase in emerging-market bond yields over U.S. Treasuries in four weeks. The cost to protect against a default by Dubai doubled.
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.
Dubai World’s main lenders included Royal Bank of Scotland Group Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Standard Chartered Plc, Bank of Tokyo-Mitsubishi UFJ Ltd, Abu Dhabi Commercial Bank PJSC and Emirates NBD PJSC.
The accord with the creditors “formalizes a strong consensus around a fair and balanced restructuring proposal and is a key step towards putting Dubai World on a sound and stable financial footing whilst enabling it to realize the full potential of its underlying businesses,” Sheikh Ahmad said.