Omani banks are owed 19 million rials ($49 million) by Dubai World, which is restructuring $24.8 billion of debt, and banks will be asked to book provisions if loan maturities are extended, Oman’s central bank governor said.
“On Dubai World, there are still no signs of any specific resolution,” Hamud Bin Sangour al-Zadjali said in an interview in Muscat today. “If it’s going to be a prolonged repayment then we will ask our banks to set provisions.”
Dubai World, one of the emirate’s three main state-owned holding companies, and its property unit, Nakheel PJSC, are seeking to renegotiate their borrowings after the global credit crisis battered Dubai’s real estate market and left the emirate’s companies unable to raise new loans. Dubai World asked its nearly 100 creditors on March 25 to roll over debt into two new loans of five-year and eight-year maturities.
Some of Dubai World’s syndicated loans do not mature until June or July and a deal may be struck by then, al-Zadjali said. Bank Muscat SAOG, Oman’s biggest bank by assets, has the greatest exposure to Dubai World among local lenders, al-Zadjali said.
Dubai World is offering to pay creditors 1 percent interest on new loans as part of the plan to renegotiate terms on its debt, a banker familiar with the plan said April 15. Banks are reluctant to accept the new rate as it is lower than the market rate of about 5 percent and would force them to book impairment provisions, two bankers, who declined to be identified, said.
Dubai World’s creditors, who are owed $14.2 billion, will be paid interest below the market rate in cash, though that will be supplemented by so-called payment-in-kind interest, a person close to the Dubai government said March 29, declining to be identified because the discussions are private. Nakheel’s trade and financial creditors, who are owed $10.5 billion, will be paid market-linked interest rates, the proposal said.
Germaine Benyamin, a Dubai-based analyst at Al Futtaim-HC Securities said April 22 that the net present value of Dubai World loans would decline by 25 percent if the interest rates were cut to 4 to 5 percent from 8 to 9 percent and maturities extended. If the 1 percent rate is accepted, the net present value would decline further, she said.
“We will review the situation because there is still no clear solution to this problem,” al-Zadjali told reporters. “So once things settle down and we know how much banks are going to receive from their exposure, we will decide accordingly.”
More than 90 banks are owed money by Dubai World and seven of its biggest creditors -- Abu Dhabi Commercial Bank PJSC, Royal Bank of Scotland Group Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Standard Chartered Plc, Bank of Tokyo-Mitsubishi UFJ Ltd. and Emirates NBD PJSC -- are negotiating with Dubai World on behalf of all lenders.