Dubai Debt Plan Published

by Lorys Charalambous, Tax-News.com, Cyprus

30 March 2010

The Dubai government has announced that it will channel USD9.5bn in fresh funding into indebted state-owned holding company, Dubai World, under a plan that will reimburse 100% of creditors’ funds within eight years. The announcement follows the company's November 2009 request to creditors for a six-month moratorium on debt repayments to allow it to restructure its USD23.5bn debt.

According to a statement released by the government on March 25, over USD8bn of government funds, and USD1.2bn in equity, will be channeled into its property development arm, Nakheel, to repay creditors in full. In addition, USD1.5bn of the government tranche will be made available as required to Nakheel to fund contractors to continue building near term development projects, ahead of a final agreement on the recapitalization plan.

Explaining the offer to creditors, Dubai World stated:

“Nakheel will continue to offer customers invested in longer-term projects the option of receiving credit equivalent to 100% of their installment payments and swap into projects nearing completion at today’s market value. Those customers invested in longer-term projects that do not want to exchange their property for a property in a development nearing completion will be offered the option of a revised payment schedule or the option to hold the assignable credit for five years. Customers would be able to swap the credit during this period for property or land, or for cash at the end of five years. The credit would carry no interest.”

“Trade Creditors (Contractors and Suppliers), under the plan, will be offered 100% recovery of their agreed claims with 40% through a cash payment (based on agreed claims); and 60% in the form of a publicly tradable security (based on current claim estimate amounts) at a commercial rate.”

“Each of Nakheel’s individual trade creditors will shortly receive a cash payment of up to AED500,000. Half of the contractors by number have balances of up to AED500,000 and therefore will have their balances settled in full,” the statement said.

According to reports, other creditors in Dubai World, not connected to Nakheel, are to receive 100% of funds invested, without interest, through the issuance of two tranches of new debt with five and eight year maturities.

Of the USD9.5bn, Dubai said USD5.7bn is left over funds from the USD10bn emergency loan from Abu Dhabi, and the remainder from “internal government sources”.

Commenting, Aidan Birkett, Chief Restructuring Officer of Dubai World, said:

“This proposal represents the best possible solution for all stakeholders. It offers a fair and equitable solution for creditors and customers. If agreed, this plan will provide Nakheel with a stable, financial footing, enabling it to meet its outstanding obligations to customers and to continue its role in the ongoing development of the UAE real estate market.”

Chris O’Donnell, Chief Executive Officer of Nakheel, added:

“Today’s plan brings us a step closer to agreeing a solution that would enable Nakheel to complete work on near-term projects. The implications of this plan are therefore extremely positive for Nakheel, our stakeholders and the region as a whole, and all our efforts are now focused on reaching an agreement with creditors as soon as possible so we can implement the plan.”

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