Dubai World is today expected to present its first concrete proposals to local banks on restructuring US$22 billion (Dh80.8bn) of debt, according to sources familiar with the matter. The government-owned group has requested meetings with Emirates NBD and Abu Dhabi Commercial Bank (ADCB) to present its proposals, which bankers say will probably include a number of options to settle the debt, ranging from immediate repayment of part of it to full repayment over a longer period but with little or no interest.
"This is the first discussion on the refinancing," a source involved in the negotiations said. "So far, all the discussions have been on the standstill." Dubai World rocked global markets in November when it said it would seek a standstill on a portion of its debt, allowing the company to put off repayment of maturing debts until a restructuring could be finalised. The conglomerate, which accounts for more than a quarter of the estimated $109bn debt load of Dubai and its companies, proposed the standstill after it could not refinance large debts taken on by its property subsidiaries as banks and investors pulled back during the global downturn.
Since then, however, Dubai World's advisers have said a formal standstill agreement might not be necessary because a "de facto" standstill is already in place. Loans and bonds that mature in the coming months - including a $1.19bn Islamic loan that is due to be repaid by the property developer Limitless at the end of this month and a Dh3.6bn Islamic bond due for repayment by Nakheel in May - are expected to be rolled over as restructuring talks continue.
The one-on-one meetings with Emirates NBD and ADCB follow talks this week with British banks in London. Banks based in the UK are estimated to be owed $5bn by Dubai World, and four of them - HSBC, Lloyds, Standard Chartered and Royal Bank of Scotland - are on a committee representing creditors of the conglomerate. The two local banks are also represented on the committee. Lord Davies, the UK trade minister, is in the UAE this week, and British diplomats have put pressure on Dubai on recent visits to fully repay its debts. Lord Mandelson, the business secretary, said during a trip to the UAE last month that time was running out for Dubai to settle its debts and that any restructuring pact must be "demonstrably fair".
As the private restructuring discussions continue, speculation has intensified about what refinancing terms Dubai World will present to banks and how much of the debt creditors will be asked to forgive. Analysts and advisers to Dubai World have said proposals are in the works for between 60 and 100 per cent repayment, with and without government guarantees and involving various repayment schedules.
"The reason why there's so much speculation is that there is a range of outcomes," a senior banker familiar with the discussions said. "It's clear that the banks don't want a haircut and they don't want to be paid zero interest, whereas the company has a completely opposite desire, which is to not have the debt and force a haircut." Once Dubai World presents its plans, the banker said, creditors will review them and hold further talks before reaching a final settlement, a process that could take months.
While some sort of haircut is expected - whether in the form of a partial repayment or full repayment with no interest - which terms banks want will depend largely on how they wish to account for losses. An outright haircut would translate into immediate losses, while a repayment schedule with below-market-rate interest would spread those losses over a longer span. @Email:firstname.lastname@example.org