Dubai World, the state-owned holding company that sought to alter the terms on about $25 billion of debt, signed a final deal with creditors, marking the end of a restructuring that roiled global markets in 2009.
Nakheel PJSC, the developer of palm-shaped islands off Dubai’s coast, separately said it expects to reach an agreement with its trade and bank creditors on restructuring $10.5 billion of debt in the first half of the year. Restructuring agreements will be issued shortly to trade creditors and the final term sheet to its bank coordination committee, Nakheel said in an e- mail today.
The Dubai World agreement included about 80 creditors, the Dubai government’s media office said in an e-mailed statement today. Dubai World’s asset value has risen in the past few months because of the recovery in global markets, it said.
Dubai World and some other state-controlled entities in the emirate faced problems repaying debt after property prices slumped amid the global financial crisis and frozen credit markets prevented them from raising new loans to repay older ones. Dubai Holding LLC, another one of the emirate’s three main state-owned holding companies along with Dubai World and Investment Corporation of Dubai, is also negotiating new terms on about $9 billion of loans, according to bankers.
More than 99 percent of Dubai World’s creditors agreed to new debt terms in September and all of the about 80 lenders consented the following month. The formal signing of the restructuring agreement awaited documentation by lawyers.
Bond Yield Declines
Dubai’s five-year dollar bond advanced after the signing of the Dubai World deal was announced. The yield on the 6.7 percent note maturing in October 2015 dropped 13 basis points to 6.47 percent as of 1:44 p.m. in the emirate, the lowest level since November. A basis point is 0.01 percentage point.
Dubai’s benchmark share index rose to a one-month high, helped by news of the Dubai World deal. The DFM General Index (DFMGI) increased 0.6 percent to 1,529.4, the highest since Feb. 20. The cost of insuring Dubai government debt against default was unchanged at 417.8 basis points, according to data provider CMA.
Dubai spent billions of dollars since 2002 on developing its property industry and transforming itself into a tourism, trade and financial-services hub. In the process, the emirate and its state-owned companies ran up debt of at least $129.3 billion, according to estimates by Credit Suisse Group AG.
Of its $25 billion debt, Dubai World owes $14.7 billion to financial institutions and about $10 billion to the Dubai government. It plans to return $4.4 billion to bank creditors in five years and $10.3 billion in eight years. It will pay an average fixed interest rate of 2.4 percent on the loans, according to today’s statement, a below-market rate.
The company will raise money to repay principal by selling assets, which include port operator DP World Ltd. (DPW) and stakes in casino company MGM Resorts International and luxury retailer Barneys New York Inc. The $10.5 billion of loans to the Dubai government will be converted into equity as part of the deal.
As part of the restructuring Dubai named Sheikh Ahmed bin Saeed Al Maktoum, the head of Emirates airline, as chairman of Dubai World in December, replacing Sultan Ahmed bin Sulayem. The government also named a new board to lead the company.
Nakheel, earlier a Dubai World subsidiary, will be owned directly by the Dubai government after the restructuring as the emirate committed $8 billion last year to support its refinancing and help finish stalled projects.
Banks including HSBC Holding Plc, Standard Chartered Plc (STAN), Emirates NBD PJSC (EMIRATES) and Abu Dhabi Commercial Bank PJSC (ADCB) are among Dubai World’s biggest creditors. All of them have had to book provisions of 10 percent to 15 percent of the value of their loans as a result of the debt restructuring.
To contact the editor responsible for this story: Edward Evans at Eevans3@bloomberg.net