Dubai 'may buy time in market recovery hopes'
Dubai, December 23, 2009
Dubai World is likely to press for more time to restructure its $22 billion debt so markets can recover, which will ease credit conditions and enable it to sell assets at higher prices, bankers and analysts said.
The Gulf emirate's debt-laden conglomerate has already put off asking formally for a debt standstill, telling creditors at a meeting on Monday that it would make its proposal in January.
Attendees at the meeting said they expected the banks would be inclined to give Dubai the green light when it made the request next month.
'Usually, in these situations, banks don't have much choice but to agree to standstill, as the amounts due are quite big, so an agreement has to be reached,' said an Abu Dhabi-based banker on Tuesday.
'Bilateral loans are much easier to negotiate but syndicated loans are more difficult, because they usually need two-thirds of lenders to agree,' he said.
The banker said the most likely scenario was that at the end of the six months, Dubai World would come up with another restructuring proposal. 'We might see a scenario where each company will have its own discussions with lenders,' the banker said.
Dubai World and its lenders are betting on a market upturn that would alleviate the company's debt concerns and improve the chances and terms for selling some assets to generate cash.
'It all comes down to timing at the end of the day,' said Ayman el-Saheb, director of operations at Darahem Financial Brokerage. 'They are hoping that in six months time the situation won't be as bad as yesterday.
'They tried to push for a better timing because by then access to liquidity may not be as bad.'
Some Dubai World assets, such as profitable ports operator DP World, have already been ringfenced and are not up for grabs, but creditors will be expecting at least some strong assets with good cash-flow will go on the block.
'This is not a good time to liquidate,' a Gulf-based banker who attended the Monday meeting said.
The complexity of Dubai World's debt structure, with some 90 creditors, coupled with the fact government financial support is contingent on an acceptable standstill deal, means the company will have a tough time holding off their creditors.
Dubai World told its creditors on Monday it had total debts of around $40 billion, while Nakheel's liabilities were approximately $9 billion, according to bankers. 'Interest payments will be paid until the restructuring is agreed, the idea is to have a plan by end of April,' said a Dubai World spokesman said on Tuesday.
Dubai World rattled global markets on Nov. 25 when it said it would request a standstill on $26 billion in debt linked to its property units, Nakheel and Limitless World.
A $10 billion lifeline from wealthier neighbour Abu Dhabi last week - the third this year - helped Dubai World stave off a default on a $4.1 billion Islamic bond from Nakheel and provided enough funds to help it meet interest and working capital costs until April.-Reuters