Dubai World wins debt deal

Investors were handed a surprise Eid gift when more than 99 per cent of creditors gave Dubai World the formal green light to restructure approximately $24.9 billion of liabilities.

By Muzaffar Rizvi

  • Follow us on
  • google-news
  • whatsapp
  • telegram

Published: Sat 11 Sep 2010, 9:25 AM

Last updated: Mon 6 Apr 2015, 11:49 AM

The deal immediately received a positive response from international investors as credit-default swaps tied to Dubai government debt narrowed two basis points to 459.6 in London on Friday from the highest close this year of 627.4 on February 12. The yield on Nakheel’s $750 million Islamic notes due in January 2011 fell 95 basis points to 16.59 per cent, while the yield on the Dubai Department of Finance’s 6.396 per cent Islamic notes, due in November 2014, yielded 6.62 per cent on Friday, down from 7.65 per cent on June 30.

“The Government of Dubai is pleased with this significant outcome and with the speed at which it has been achieved, given the complexity of the situation and the large number of creditors involved,” Shaikh Ahmad bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, said in an e-mail statement.

The lock-up agreement — preventing the creditors from selling their debt — is a step towards the restructuring of around $25 billion in debt under the Dubai World corporate umbrella. A consortium, comprised largely of banks, is required to sign up to the lock-up for the restructuring to go ahead for completion. The restructuring plans include the selling of assets over five to eight years to raise more than $19 billion to pay off creditors.

“The agreement formalises 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,” Shaikh Ahmad said.

Dubai World and its main creditor banks agreed in May to restructure $14.4 billion of bank loans and $8.9 billion of government liabilities. 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 overwhelming support means that the company is well-positioned to close the restructuring in the coming weeks,” Dubai World said in a separate statement.

“The proposal puts the company on a sound financial footing, enabling it to realise value for the benefit of all stakeholders. The formal agreement represents about “99 per cent of creditors by number”, and more than “99 per cent by value”, according to the statement. “The Supreme Committee and the company are now focused on value creation and on ensuring the highest standards of corporate governance and management are in place across Dubai World for the benefit of all stakeholders,” the statement said.

“The Government of Dubai is pleased with this significant outcome and with the speed at which it has been achieved, given the complexity of the situation and the large number of creditors involved,” Shaikh Ahmad said.

The formal agreement also marks the support of the creditors to the separation of Nakheel from Dubai World. “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, the statement said.

Under the restructuring of its parent company, Nakheel, a unit of Dubai World, would be placed directly in the hands of the government and receive key assets from Dubai World after separation.

The deal is a significant step towards bringing financial stability, and would remove some uncertainty and boost equities on Monday after the Eid holidays, analysts said.

“Today’s announcement is good and removes some uncertainty, but doesn’t remove all the headwinds that need to be worked through,” Matthew Wakeman, EFG-Hermes managing director for cash and equity-linked trading, told Khaleej Times.

“Dubai World deal draws a line in the sand and allows investors to once again concentrate on earnings growth going forward. An orderly resolution to the debt agreement was priced in, especially factoring in last week’s strength so although we may experience a small relief rally,” Wakeman said. — muzaffarrizvi@khaleejtimes.com



More news from