x Abu Dhabi, UAEFriday 21 July 2017

Reading between the lines of Dubai World's restructuring

The Dubai World' restructuring saga boils down to whether bankers take a haircut or agree to extend the repayment period at lower rates of interest.

Let's pretend for a moment that Dubai World's restructuring ordeal has been a gripping saga of dramatic tension, instead of the big snooze-o-rama it has become. Here, the fate of one of the country's most important companies hangs in the balance, with the outcome being determined by a handful of powerful men whose own careers will undoubtedly also be defined by the result. Yet all we know about this comes from a handful of anonymous sources, most of them sanctioned mouthpieces for various players who pass along second-hand titbits.

Now this Hallmark classic appears to be coming to its predictable conclusion. After all this whispering about who is talking to whom and what pressure tactics they might be using and what they might be differing over, we are told that the options have boiled down to these: bankers might have to choose between taking a haircut - a reduction in the principal they are owed - or agree to extend the repayment period at lower rates of interest.

That's it? That's the big chase scene to set us up for the cliff-hanger ending? Folks, this is restructuring 101. Short of paying in full (not an option), or handing over the keys to the company (also not an option), this is pretty much the way debts get worked out everywhere when debtors can't pay as agreed. So here's a plot-spoiler: the white knights in all of this, governments, favour not handing out haircuts. And bankers hate haircuts and will do almost anything to prevent them, including refinancing on more lenient terms. So, the chances are all parties agree to spread out the debt and add the kind of explicit government guarantees of repayment that creditors assumed they were getting when they lent to Dubai World in the first place. A deep haircut? That would be a plot twist. So would full repayment.

The only excitement came in the opening sequence, when Dubai World rocked the global financial markets, shocked its creditors and surprised even its owners. That had everyone on the edge of their seats. After that beginning on November 25, you sort of expect more excitement to ensue. We got some in December when Abu Dhabi extended support to pay off Nakheel's US$4.1 billion (Dh15.05bn) bond. And then Dubai created the Dubai World special tribunal, with its months of mandatory moratoriums on debt repayments.

And I love the image of all the accountants from Deloitte and KPMG and Moelis crawling through the account books like those spider robots in Minority Report, trying to figure out the details of all the assets and how much it is all worth. But now it is like watching a Jane Austen classic. Oh no! Will Hugh Grant accept subordination of his credit standing to Alan Rickman to win Miss Dashwood? Who cares?

We all should, unfortunately, which means we have to keep watching even though we are thinking of switching over to something more exciting on TV. The restructuring is dreadfully important, and not just because there are so many angry bankers involved. Dubai World is a major player in Dubai's economy, and Dubai's economy represents more than half of the part of the UAE economy that does not come from oil.

But the real drama is not about what happens to Dubai World. It is what happens to the local banks that lent to it. Some analysts reckon that any resolution, no matter in what form, could actually help the banks. And banks, which have been clutching their purses in terror, would be able to start lending again. That is important, because it would enable businesses to start investing and trading again.

It might also reduce the risk premium that investors are demanding from borrowers in the UAE and the rest of the Gulf. @Email:warnold@thenational.ae