Dubai World could still meet the December 14 deadline on the US$4 billion (Dh14.69bn) payment of a sukuk from Nakheel under one option being considered by advisers to the conglomerate. Repayment on schedule is one of four alternatives being considered by Dubai World, which announced on Wednesday it would seek a freeze on billions of dollars in debt repayments to bondholders and creditors.
The options are still being pondered by Aidan Birkett of Deloitte, the new chief restructuring officer of Dubai World. He was appointed to oversee its reorganisation, along with the investment bank Rothschild and the US corporate specialists AlixPartners. If Dubai World pays back the sukuk, it would solve a problem for the company and its bondholders, and leave open the option of rescheduling bank debt and other liabilities, including bills owed to international contractors.
Other options being considered include a scheme to offer bondholders 80 per cent redemption of the value of their holdings, with a similar offer made to bankers. Alternatively, Dubai World may move forward with the plan to seek a general "debt holiday" under the terms of last week's standstill proposal, by which payments would be frozen until May 30 next year with a view to negotiating a rescheduling of all its debts.
In the most drastic scenario, Dubai World might embark on a general liquidation of assets in response to legal action by creditors. But this is thought to be a remote possibility, as it is likely to impair the value of Dubai World assets, leaving everyone worse off. Legally speaking, creditors who lent to Dubai World during the boom years were fully aware that they were lending to government-related entities (GRE) and that the bonds were not guaranteed by the sovereign, advisers to Dubai believe.
"The Dubai Government has no legal obligations in respect of GRE indebtedness," according to the prospectus of Dubai Government bonds sold earlier this year. Creditors of Dubai World should be prepared to take a share of the pain, advisers believe, as creditors have in other markets worldwide where conditions have deteriorated. The Central Bank is "closely watching events stemming from the Dubai debt crisis to ensure no harm results for the national economy", a spokesman for the bank told Reuters yesterday.
The spokesman added that it would "wait until the Central Bank opens on Monday" for further news. Stock markets in Dubai and Abu Dhabi reopen on Monday after closing at the end of trading on Wednesday. Ministries, government agencies and state companies have been advised to remain on holiday until next Sunday. The first move for Dubai World this week will be to formalise its request for a debt repayment standstill.
Dubai World's total debts and liabilities amount to $59bn, its financial filings show. Direct debt, bonds and sukuk, and loans of its subsidiaries amount to $24.27bn, Deutsche Bank estimates, with the balance consisting of unpaid bills to contractors and land grants. It is not known how much it owes the Dubai Government for land granted to it for development. The negotiations over standstill arrangements will be complicated by a flurry of speculative interest in the Nakheel sukuk. Reports from New York say the American hedge fund QVT Financial is leading efforts to co-ordinate holders of the sukuk outside the Gulf, which lost almost half its value after news of the Dubai World standstill request.
It traded at 57 cents in the dollar on Friday, from a level of 110 cents before last Wednesday's standstill announcement. Such movements create perfect conditions for market "arbitrageurs" who take positions in volatile stocks in the expectation of a quick return. HSBC, the global banking giant with the biggest exposure to Dubai, yesterday gave the emirate a clear show of support. Michael Geoghagan, the group chief executive, said: "I am confident that the leadership of Dubai and the UAE will overcome any short-term issues they face - which appear to have been somewhat sensationalised - and continue to lay the foundations for sustainable growth."
The bank has $15.9bn outstanding in loans and advances in the UAE, equivalent to 1.7 per cent of worldwide loans. This is outweighed by $19.3bn of deposits in the Emirates. @Email:email@example.com firstname.lastname@example.org