x Abu Dhabi, UAESaturday 22 July 2017

Top officials seek open dealings on Dubai debt

It comes as the cost of insuring against the default of Dubai debt rises to its highest level for nearly a year.

Lord Mandelson speaks to <i>The National</i> about Dubai's dept and his expectations on its repayment to British Banks.
Lord Mandelson speaks to The National about Dubai's dept and his expectations on its repayment to British Banks.

ABU DHABI // Top officials from the US and British governments are calling for transparency in the settlement of Dubai World's US$22 billion (Dh80.8bn) debt restructuring, intensifying diplomatic pressure to conclude a deal with creditors. Neal Wolin, the deputy secretary of the US Treasury, said he would call on officials during his visit to Dubai today to ensure openness in the restructuring of the emirate's companies.

"I think it's important that, as they work through these restructurings and these issues, that it be done in a way that is transparent so that we can all understand what's going on," Mr Wolin said. Lord Mandelson, the British business secretary, said yesterday that anything less than a full repayment of Dubai's debts would damage its reputation and harm its ability to borrow in the future. "If banks and contractors are not properly dealt with, engaged and given comfort, then I think we will be facing a further crisis," he told The National during an official visit in Abu Dhabi with Sheikha Lubna Al Qasimi, the Minister of Foreign Trade. "International reputations take a long time in being created, but mistakes in handling can damage them very quickly. Any sudden or unilateral imposition of a settlement would be received very badly."

The calls came as the Dubai World restructuring talks entered their 13th week and the cost of insuring against the default of Dubai debt rose to its highest since March last year. "The original principal sum lent by banks needs to be repaid," Lord Mandelson said. "The terms of that - the interest rate and the time period - is a matter of negotiation. "It is a matter of principle that the original sums need to be paid back. And for contractors, the terms of their original agreement and the work that has been successfully completed must be received in full."

Lord Mandelson rejected reports on Sunday that Dubai World's advisers were preparing to present creditor banks - including the British giants Royal Bank of Scotland, HSBC and Lloyds - with a proposal to repay only 60 per cent of the $22bn of debt it is seeking to restructure over seven years, and with no interest. British banks are estimated to be owed $5bn by Dubai World. "I don't believe [the reports]," Lord Mandelson said. "I don't give them credence. I'm assured they do not come from official sources. I was told in Dubai yesterday that they're simply rumours, and I accept that assurance."

Credit default swap (CDS) spreads on Dubai debt rose by 3.6 per cent in London yesterday to their highest levels in nearly a year, CMA Datavision said. Markets have also been affected by the restructuring reports, with the Dubai Financial Market down 0.2 per cent yesterday after a 3.5 per cent fall on Sunday. Morgan Stanley said in a note yesterday that the rise in Dubai CDS spreads was "overly bearish", and that the reports of a 60 per cent repayment to Dubai World creditors with a sovereign guarantee were not necessarily true.

Given Dubai's budget constraints, the bank said it was "doubtful that a sovereign guarantee of such magnitude could be currently on the table". As it works towards a restructuring, Dubai World is in the process of selling its "non-core" assets, Moody's Investors Service said in a note yesterday. Istithmar World, the group's private-equity and investment arm, is preparing to sell Inchcape Shipping Services and has already offloaded properties in London and the W Hotel Union Square in New York.

But even Dubai World's prize shipping assets could go on sale, the credit ratings agency said. The conglomerate owns the ports giant DP World and the Jebel Ali Free Zone, although both have been specifically excluded from its restructuring. "In our view, both entities could be sold, although the strategic nature of their businesses would make it unlikely that they would fall into international hands," said Philipp Lotter, a Moody's analyst.

"Placing greater legal distance between these generally healthy companies and the ongoing restructuring turmoil of their parent would be beneficial and could lead to stabilisation and potentially medium-term improvement of their credit." Mr Wolin will meet today with Sheikha Lubna, Mohammed Abdullah al Gargawi, the Minister of Cabinet Affairs, and Sheikh Ahmed bin Saeed Al Maktoum, the chairman of Emirates Airline and the head of the Dubai Supreme Fiscal Committee, among others.

@Email:afitch@thenational.ae bhope@thenational.ae