DUBAI: Bankers gathered in Dubai on Wednesday to hammer out a $26 billion debt plan with state-owned Dubai World as a repayment deadline loomed, adding to pressure on the glitzy emirate to settle the conglomerate’s debt.
Core creditors representing 97 banks met to finalise months of talks on how Dubai World can restructure the debt, about a quarter of Dubai’s estimated total debt of $101 billion. Markets anticipated a deal favourable to lenders, with the cost of insuring Dubai sovereign debt falling and bond prices rising for Dubai World unit Nakheel, the property firm that built a giant island replica of the Earth.
Dubai is expected to lean heavily on its oil-exporting neighbour Abu Dhabi, the leading member of the seven-member United Arab Emirates federation, which has stumped up $10 billion in bailouts and is expected to write another cheque. “It looks very much like the main scenario of an Abu Dhabi bailout is taking shape,” said David Butter, director for Middle East and North Africa at the Economist Intelligence Unit.
“I doubt that we will ever be able to get an authoritative figure on it, but the bottom line is that Abu Dhabi seems to have decided that it has to pay whatever is necessary to avoid serious reputational damage for the UAE as a whole.”
Dubai’s shock request for payment delays in November shook global markets and raised wider concerns among international investors about transparency and disclosure standards in the region.
Dubai World’s debt troubles have also weighed on the local banking sector, which is heavily exposed to Dubai World. Moody’s estimated total UAE banks’ exposure to be around $15 billion.
Dubai spent wildly during the boom years on infrastructure and development, erecting tens of thousands of luxury homes in the space of six years, only to see construction sites go silent and rent go unpaid as the financial crisis swept the Gulf. Speculation during the months-long debt talks has centred on the amount of new aid from Abu Dhabi and on the size of the “haircut”, or cut in principal, that lenders will swallow.
Another of Dubai World’s construction units, Limitless, has a $1.2 billion Islamic loan due on March 31 and could be the next tripwire in the conglomerate’s path. Separately, ports operator DP World reported a sharp fall in profit for 2009 but increased its dividend by 19 per cent, which will hand more than $100 million of welcome cash to Dubai World, which has a 77 per cent stake.
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