Dubai World gets approval from majority of creditors to push through $14.6bn debt restructuring

The deal entails full, early repayment of 2015 maturities totaling $2.92 billion and the extension of debt due in 2018 to 2022.

Creditors will receive better interest rates, a targeted disposals programme and collateral in the form of shares in DP World, the ports operator 80 per cent owned by Dubai World, in return for agreeing to the extension. Pawan Singh / The National
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Dubai World has a “substantial majority” of creditors in support of its proposals to restructure US$14.6 billion of debt and will use Dubai bankruptcy legislation to push the deal through hold-out creditors.

The government-owned conglomerate, which was at the heart of the emirate’s financial crisis five years ago, yesterday announced it had received approval of “comfortably” more than two-thirds of creditors by value of their debt.

“The agreement represents a ‘win-win’ for the company and lenders, providing an improvement on the existing credit agreements for both sides,” Dubai World said in a statement.

It will now file a "voluntary arrangement notification" under Decree 57 of the Dubai legal code, introduced to deal with the original Dubai World restructuring in 2010.

Specific Dubai World subsidiaries covered by the bankruptcy provisions are Dubai World Group Finance, Istithmar and Port & Free Zone World.

“The commencement of the Decree 57 process which is tried and tested, and has very similar characteristics to parallel regimes in other international jurisdictions, is an entirely logical and expected step to complete the agreed debt optimisation exercise,” Dubai World said.

The new deal will involve the early repayment of about $2.9bn of debt due by September this year, and extension of the repayment date for a further $10bn of debt, originally due in 2018, by an extra four years.

About $1.8bn had already been repaid from the proceeds of asset sales over the past year.

In return for agreeing to the extension, creditors will receive better interest rates, a targeted disposals programme and collateral in the form of shares in DP World, the ports operator 80 per cent owned by Dubai World.

The deal was greeted positively by some Dubai analysts. “The agreement shows signs of solid recovery in the underlying Dubai economy,” said Tariq Qaqish, the head of asset management at the Al Mal Capital brokerage.

“At the same time, the extension of debt will help also the government to balance its long-term liabilities comfortably,” he added.

But there are likely to be some misgivings on the part of creditors who have not agreed to the new terms and who now face the force of Dubai law to agree.

Two British banks, Royal Bank of Scotland and Lloyds, which hold about 10 per cent of the debt, were known to be unhappy about the terms after a creditors meeting in London last month. The two banks have tried to sell their holding in the distressed debt market but failed to get the price they wanted.

Not everybody was convinced of the attractions of the deal. Ahmed Shaheen, a fixed income sales trader at Exotix Partners in Dubai, said: “The truth is that Dubai World would have made a much greater impact had the restructuring gone through without the need to apply Decree 57.

“Resorting to Decree 57 is the nuclear button, if you may, and it’s really a shame that after five years since emerging from the worst credit crisis in our life time we are seeing Dubai resort to such drastic measures to push through more debt restructurings,” he added.

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