x Abu Dhabi, UAESaturday 22 July 2017

Nakheel creditors should look to refinance

Deutsche Bank official says creditors should refinance rather than take Dubai World to court.

Creditors of Nakheel, which has asked for a restructuring of its debt, should refinance rather than take Dubai World to court in a "fruitless exercise", the regional head of Deutsche Bank says. Creditors including HSBC, Royal Bank of Scotland, Standard Chartered, Lloyds, ADCB and Emirates NBD gathered in Dubai yesterday for their first formal meeting since Dubai World asked to restructure its US$26 billion (Dh95.49bn) of debt, including a $4bn repayment by Nakheel of an Islamic bond due next Monday.

"It is not in their (creditors') benefit to take the government entity to court - it is a fruitless exercise," said Henry Azzam, the chief executive of Deutsche Bank Middle East. Deutsche Bank acted as the transaction administrator, principal paying agent and registrar of the sukuk, but does not have any exposure to Dubai World, Mr Azzam added. "Time is tight but it is still do-able," he said. "The creditors must sit down with the owners. I believe this is the plan. We should not make a big fuss out of it."

Part of the Nakheel sukuk falls under the jurisdiction of UK courts, but there are doubts whether Dubai would enforce a ruling from them. There is almost no historic precedent for a sukuk default and it is unclear whether sukuk holders have access to assets owned by the issuer. The sukuk was backed by property in the Dubai Waterfront, a proposed city housing 750,000 people next to Jebel Ali. Abdulrahman al Saleh, the director general of the Dubai Department of Finance, said Dubai World might sell some assets to meet its obligations but the Government would not dispose of any.

"Part of obtaining finance is selling assets - belonging to the company and not the Government," Mr al Saleh told Al Jazeera television. Dubai World has said the restructuring excludes Istithmar World, DP World and Jebel Ali Free Zone, all of which are on a "stable financial footing". Assets held by these companies include the US retailer Barneys, luxury hotels and other international property. Creditors have yet to make their position clear.

Mr Azzam said the restructuring would affect the financing plans of other state-owned companies, which would find it hard to raise funds. "Many companies will face tight liquidity because of the debt situation," he said. "They will have to entice creditors with sweeteners." Before the collapse of Lehman Brothers in September last year, ample global liquidity and low interest rates led many borrowers to finance long-term projects with short-term loans, based on the assumption they could easily be refinanced.

Refinancing will become the biggest single issue in the future, said Farouk Soussa, a credit analyst at Standard & Poor's Ratings Services. The agency last week downgraded six Dubai Government entities by as much as four notches, giving them junk status. It also lowered the ratings for three banks based in Dubai. "Companies have always assumed refinancing going forward," Mr Soussa said. "In the current environment, that is at risk. There is the potential knock-on effect (on other Dubai entities) regarding the ability of these companies to raise money. That will work itself through the system in the next few months."

Mr Azzam said: "These companies will have to pay higher risk premiums. The market will start pricing the risk of state-owned companies differently. It will no longer be the price of a sovereign [government issuer]." This would not only affect Dubai Government companies, he said, but also similar companies in the region including Mubadala Development, the Abu Dhabi strategic investment company; TDIC, the Abu Dhabi tourism company; and Saudi Basic Industries Corporation, the Saudi Arabian petrochemicals giant.

@Email:uharnischfeger@thenational.ae