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Dubai World Aims to Stand Still


14-02-2010
English | العربية

Angus Taverner

Director- Global Affairs


Tag: United Arab Emirates
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For the past week expectation mounted that Dubai World will be ready to make a formal proposal for a 6-month standstill agreement with its creditors on $22 billion of its debts by the end of January. However, other creditors are throwing spanners into the works by seeking to join the standstill committee. Japans Bank of Tokyo-Mitsubishi has joined the team and this may delay negotiations into February.
Leaks from the standstill negotiations suggest that the final deal envisages Dubai World continuing to service its debts in return for the creditors undertaking not to attempt any seizure of assets. During the 6-month pause this will create, Dubai World will then work to agree a complete restructuring of its existing debts, probably over an extended repayment period.
It seems that the main problem Dubai World faces is reaching agreement with smaller investors 97 in total who may be more exposed than the larger banks. Analysts continue to be interested to see how and to what extent these investors will not take recourse to litigation. Indeed, Dubai Worlds smaller creditors may also be looking to sell their debts on secondary markets rather than becoming involved in a lengthy renegotiation of the debt structure. Speculation has been triggered by rumours that one unnamed creditor, believed to be owed about $100 million by Dubai World, is seeking to sell debt at about 70% of face value; others may then follow.
However, analysts will be aware that such rumours of sales are normal features of any major debt restructuring because smaller creditors often look to cut their losses by selling loans at a discount rather than keeping capital tied up while new debt terms are agreeda process that could take at least 6 months in the case of Dubai World. Certainly looked at more broadly and over the long-term, the prospects for full recovery in Dubai begin to look positive.  But if, as most commentators predict, Abu Dhabi emerges from this economic crisis as the dominant partner, creditors should be confident that their investments are well protected--for either political or commercial reasons.
AT


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