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Still no news on the $26bn Dubai World debt rescheduling proposal

Banks assessing the proposed restructuring of $26 billion in debts at the Dubai World real estate subsidiaries have been set a deadline ‘within weeks’ to respond, the chief executive officer of Abu Dhabi Commercial Bank, Alaa Eraiqat told The National newspaper yesterday.

ADCB is one of the largest local creditors with debts of $2.4 billion outstanding. Mr Eraiqat said the group’s top bankers were ‘throughly reviewing the proposal’.

HSBC support

Since one of the leading international lenders HSBC confirmed its broad support for the plan there has been a tendency to assume that this is a done deal. But the devil is always in the detail and banks have baulked at their unfair treatment in comparison with bond holders, and it is not known publicly what kind of interest rates Dubai World is proposing to pay after the rescheduling.

Last December the UAE Central Bank and state-owned Abu Dhabi banks provided $20 billion in five-year bonds to refinance Dubai, and the proposals on the table will use $5.7 billion from these funds.

The proposal includes the repayment of sukuks or Islamic bonds in full while other loans are extended by five to eight years, and some $9.5 billion in debt is converted into equity. Hence sukuk owners escape without penalty.

Nakheel equity

Banks responded favorably to the proposal initially as it put new money into Nakheel and removed the concept of a haircut or loss of principle for the banks. However, some analysts are talking in terms of a ‘hidden haircut’ for the banks with write offs of more than $5 billion necessary to adjust for lost interest payments in the deferral process.

Abu Dhabi originally set an April 30 deadline for the conclusion of the restructuring, and it looks as though the deadline given to the banks is broadly in line with this target date. May 13 is the day the next sukuk is due for repayment.

However, it would be surprising if a deal emerged without some kind of last minute horse trading. Hopefully this can be conducted behind closed doors as nobody would like to see a repeat of the public brinkmanship of last December, now generally held to have been a totally unnecessary embarrassment to all parties. 

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