Dubai World Finalizing Debt Restructure

by Lorys Charalambous, Tax-News.com, Cyprus

23 September 2010

Having received almost unanimous approval of its USD24.9bn debt restructuring plan with bank creditors, the state-owned conglomerate, Dubai World has announced that it is finalizing a further agreement with the creditors of Nakheel PJSC, its wholly-owned property development subsidiary.

Earlier this month it was announced that 99% of bank creditors had agreed to a restructuring deal. It was previously agreed in May that Dubai World’s USD14.4bn in loans are to be repaid to the banks in two separate tranches: one maturing in five years and the other in eight. Bank creditors will receive 1% interest on the loan of five years, and be able to opt for one of three options on the loan with eight-year maturity, but will receive at least a 1% interest rate.

The next phase in Dubai World’s restructuring is to reach an agreement with its trade creditors with respect to its property development arm, Nakheel. Dubai World has anticipated that it will achieve a 95% acceptance rate with creditors, allowing it to implement a plan whereby creditors will receive 40% of owed funds in a one-off cash payment, with the remainder paid through a high-interest sukuk (Islamic bond).

Back in March 2010, the government channeled USD8bn in new funds into Nakheel, and an additional USD1.2bn in equity, to ensure full repayment to creditors. Meanwhile, an additional USD1.5bn of the government tranche was made available as required to fund contractors to continue building near-term development projects for Nakheel, ahead of a final agreement on the recapitalization plan.

Dubai World explained at the time: “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.”

Creditors that do not agree to the terms laid out by Dubai World will have their cases mediated by a Special Tribunal at the Dubai International Financial Centre. A first creditor claim was announced also this week, but, according to Nakheel, it is not expected to delay an agreement on the arm’s debt repayment. Nakheel is reported to have USD10.5bn in outstanding loans and bills.

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