x Abu Dhabi, UAEWednesday 26 July 2017

Dubai World players prepare for final act

Talks between the indebted conglomerate and the many creditors to whom it owes money appear to be rapidly approaching some kind of denouement.

Talks between the indebted conglomerate and the many creditors to whom it owes money appear to be rapidly approaching some kind of denouement. Ever since the announcement last November that Dubai World was seeking to restructure some US$26 billion (Dh95.5bn) of debts and liabilities, the conglomerate has been in de facto talks with its creditors - the 90-odd banks, international investors and trade creditors to whom it owes money.

Those talks have been sometimes completely informal, over a coffee or in a discreet phone call between advisers and creditors. Sometimes they have been played out in the media, with offer "details" and proposed "terms" leaked into the public domain as part of the negotiating process, to be met with official denial or "no comment". But now a denouement of some kind is rapidly approaching. The Dubai Department of Finance, which plays a crucial role as financier of last resort to Dubai World, said last month that formal proposals could be ready by the end of March, a month ahead of the deadline in the original "standstill" announcement. Some advisers suggest they might emerge within 10 days.

Dubai World representatives and advisers are in London talking to the four British banks and one Japanese lender that control the co-ordinating committee of creditors, the "cocom". With the circle of insiders to the talks widening, the pace of disclosure will accelerate fast. q Who is talking? aThe number of people involved in the Dubai World talks has grown exponentially since the "standstill" announcement on November 25.

Leading negotiations for the company itself is Aidan Birkett, the chief restructuring officer, and his band of advisers from the international accounting firm Deloitte. The company is also advised by the investment bank Rothschild, as well as lawyers and communications experts. The Dubai Department of Finance is closely involved in the process via the Dubai Financial Support Fund (DFSF), run by its executive director, Dr Marwan Abedin, which has been paying Dubai World's operating bills and interest charges since November 25. The DFSF is advised by a team from the US investment bank Moelis and Co, led by one of the bank's executives, Augusto Sasso, and supported again by lawyers and public relations advisers.

The Government of Abu Dhabi is also kept fully aware of progress. As the source of funds for the DFSF, via the two $10bn bond issues last year, it has made it its business to monitor day-to-day developments. The cocom of creditors consists of the British banks HSBC, Standard Chartered, Royal Bank of Scotland and Lloyds TSB, as well as the Bank of Tokyo Mitsubishi of Japan. Representing regional banks are Emirates NBD and Abu Dhabi Commercial Bank.

Although no full list has been disclosed, the rest of the creditors are small to medium-sized banks from around the world, but with surprisingly small US involvement. American banks on the whole appear not to have lent big sums to Dubai World. How much does Dubai World owe? @Body-Answer2 :The official figure for total group debts and liabilities of the Dubai World conglomerate is $59bn, as disclosed in filings to NASDAQ Dubai. But not all of that is subject to renegotiation. The conglomerate believes it can service most of its debts from ongoing facilities, operational cash flow, and asset sales.

The November restructuring identified $26bn of debts and liabilities to be renegotiated. No breakdown has been officially given, but it is thought about $10bn of that related to Nakheel, the property developer responsible for the Palm and World developments in Dubai. Some of that debt was bank loans, some in unpaid contractors' bills. There was also a $4.1bn bill for the sukuk, or Islamic bond, that fell due in December. The balance of the $26bn was in the form of group financial debt and other trade liabilities. Since the sukuk was repaid, the amount owed to outsiders fell to $22bn. But the DFSF insists the full sum owed is $26bn, because it borrowed the money on commercial terms and is seeking repayment by Dubai World on the same unsecured terms as other creditors.

Since the November announcement, DFSF has put more than $5bn into those parts of Dubai World undergoing restructuring. The sukuk repayment accounted for most of that, with roughly $1bn extra for interest payments, salary, general and administrative expenses. DFSF is committed to maintaining its financial support until a deal is done with creditors, subject to a deadline of April 30. What are Dubai World's options?

@Body-Answer2 :The conglomerate can present creditors with the "carrot or stick" ultimatum common to restructuring situations the world over: accept our terms for revised repayment or we will go into bankruptcy. Since the Government of Dubai announced special procedures to deal with a Dubai World bankruptcy, involving a tribunal to hear and rule on creditors' claims, the stick option has greater credibility. There are now mechanisms in place to deal with insolvency if creditors do not agree on a deal, in which case they might lose out in the scramble for assets.

That is a "doomsday" scenario for the creditors, but also for Dubai World. Bankruptcy would have far-reaching implications for the rest of its liabilities, and knock-on effects for other indebted Dubai corporations like Dubai Holding and the Investment Corporation of Dubai. The creditworthiness of Abu Dhabi companies, which have already come under pressure from the international ratings agencies as a result of Dubai's troubles, might be further affected. Dubai's ability to raise capital on the international markets for post-recession recovery could be jeopardised.

The carrot element entails a promise by Dubai World that creditors can look forward to receiving some, perhaps most, of their money back over time, if they agree to the terms. Details of these plans are what creditors in London, the UAE and the rest of the world are now awaiting. According to people familiar with the negotiations, the proposals are likely to involve some form of "haircut" - a discount to full repayment.

Various levels have been suggested, between 60 and 80 per cent of principal amounts, depending on how long creditors are prepared to wait for their money back. Full repayment is still a possibility, but over as much as 10 years. What are the creditors' options? @Body-Answer2 :Once they know the options, creditors can go along with the carrot, or take their chances with the stick. One great imponderable is that nobody really knows a fair value of Dubai World assets in a bankruptcy and break-up situation. Insiders talk of a maximum return of 50 per cent, a severe haircut by any standards.

Reaction to the proposals will vary between the different classes of creditors. The big global banks, as represented on the cocom, might take the view that the value of continuing business in the UAE and the Gulf justifies accepting a significant discount now and drawing a line under the whole affair. Regional banks are more likely to accept long-term proposals for full repayment, perhaps with guarantees of assistance from Gulf central banks if big write-offs are required in the short term.

In between, there are a range of banks and investors, like holders of the next two Nakheel sukuks due this year and next, who could react unpredictably. Some might insist on immediate repayment in full, and began legal action to retrieve assets. Sukuk holders have proved themselves ready to use the courts, especially in the US, to protect their interests. Where do we go from here? @Body-Answer2 :Restructurings tend to be long, drawn-out affairs. One recent example was Global Investment House in Kuwait, which took a year to do a deal with 15 banks over $2bn of debt. On the international stage, Eurotunnel was in talks with creditors and shareholders for the best part of 15 years.

Dubai World does not want it to drag on for that long. Advisers to the Dubai Government have talked of a deal by the summer, but once their proposals are put, events fall outside their control. Friends of Mr Birkett say he does not want to miss another winter skiing season. @Email:fkane@thenational.ae