x Abu Dhabi, UAEFriday 21 July 2017

Banks take stock of debt deal

Local lenders say they still face write-downs but are more content following concessions.

Local lenders have wrung some concessions out of Dubai World in the negotiations over restructuring its US$23.5 billion (Dh86.31bn) of debt, but will still have to take significant write-downs in their accounts once the deal is formally signed. Details of regional lenders' treatment emerged yesterday, along with the announcement of a deal in principle with the seven leading banks, which are owed $14.4bn of the total debt.

Executives of leading UAE banks greeted the deal as "positive" and were happy the terms had improved since the original proposals in March. An executive of Abu Dhabi Commercial Bank (ADCB), who requested anonymity, said the bank was "content" with the deal, but added it would have to write down between 12 and 15 per cent of its overall exposure, estimated to be about Dh9bn. ADCB and Emirates NBD are the main local lenders represented on the co-ordinating committee of seven banks that agreed to the deal.

Some analysts pointed out that regional banks would continue to feel pressure on lending and liquidity after the deal, and would look to the Central Bank for guidance on how and when to take the write-downs. "We're not expecting any aggressive loan growth this year," Germaine Benyamin of HC Brokerage told Reuters. The main concession made by Dubai World under its chief restructuring officer Aidan Birkett is an arrangement where banks lending in UAE dirhams can choose to receive an interest rate top-up to reflect the higher cost of borrowing in the Emirates.

In addition to the standard 1 per cent rate on offer to all creditors, dirham lenders will receive the difference between western and local interest rates, up to a cap of a further 1 per cent. The proposals were agreed to by lenders accounting for 60 per cent of Dubai World's total restructured bank debt, and were broadly welcomed by bankers and global markets. Regional markets, weighed down by events in the euro zone, showed small rises on the news. The Dubai Financial Market General Index rose 0.5 per cent, with banking shares all showing gains, while the Abu Dhabi Securities Exchange General Index rose just 0.1 per cent.

The proposals split Dubai World's $14.4bn of bank debt into two tranches. The first, repayable over five years, carries a 1 per cent interest rate, much lower than the rate banks would have received under their original loan agreements. Under the second tranche, repayable in eight years with minimum 1 per cent interest, creditors are offered three options, backed by a choice of shortfall guarantees by the Government of Dubai or "payment in kind" alternatives that would roll up interest over the repayment period.

"This is an important milestone and reflects our efforts to achieve the best possible solution for all our shareholders," Mr Birkett said. For the Dubai Government, Sheikh Ahmed bin Saeed Al Maktoum, the chairman of the Supreme Fiscal Committee, said the deal was "the result of considerable efforts from a large number of stakeholders who all share a common interest in Dubai's future". "Good news! The last thing the market wanted is another surprise," said Christopher Niehaus, the managing director and joint head of investment banking for the MENA region at UBS.

"This is part of the process of restoring confidence. To that end it is a step in the right direction but these things take time." The proposals will be put to a meeting of all of Dubai World's creditor banks next month for approval on the detailed terms. Dubai World sources expect approval on a final package in the autumn. Dubai World is also seeking the agreement of contractors and customers of Nakheel for the terms of its offer to resolve the balance of the debt. Mr Birkett said progress was also being made on these plans.

Khatija Haque, an economist at Shuaa Capital said: "The deal recognises the different funding costs of various creditors and offers flexibility in payment terms to compensate for this. "This is positive and in our view makes it more likely that the proposal will be accepted by all the creditors." fkane@thenational.ae