Banks look to nail down details of debt plan

The bank creditors of Dubai World will seek further details on the US$23.5 billion debt restructuring plan before deciding whether to accept.

The bank creditors of Dubai World will seek further details on the US$23.5 billion (Dh86.31bn) debt restructuring plan before deciding whether to accept. While the banks' initial response has been positive, they will ask this week for greater clarity on certain points, such as the interest rates that will be paid to the creditors of the Dubai Government-controlled conglomerate.

Interest rates are likely to be one of the key subjects of negotiations between the creditors' co-ordinating committee, made up of the largest lenders to Dubai World, and the conglomerate. "The co-ordinating committee will move as soon as possible to understand the full terms such as interest rates as that determines whether they've got a decent yield on their assets," said a banker from one of the lenders on the committee, who spoke on condition of anonymity. "Once that's established, they need to get the 97 banks on board and then can announce a done deal."

Dubai announced on Thursday proposals for restructuring Dubai World's debt, including that owed to 97 international and regional banks. The plans, which had been in preparation since November, involve Dubai World turning $10.1bn of its debt into equity. While the seven-bank co-ordinating committee is still digesting the proposals, some banks outside the committee say they remain in the dark about the plans.

"We are hoping to learn more details this week as we still don't know exactly what the offer is on the table," said a banker, who asked to remain anonymous. "The main points, however, are likely to be over whether repayment is five or eight years and interest rates." Another potential stumbling block is what some banks feel is the unequal treatment of lenders to Dubai World and for those of its Nakheel property subsidiary.

The creditors of Dubai World, which were owed $14.2bn at the end of last year, will be asked to roll over their loans into two tranches of new debt, maturing in either five or eight years. No indication of interest rates on the terms was offered. By contrast, the bondholders of two Nakheel sukuk, due in May and in January of next year, will be repaid in full and on time if the proposals are accepted.

The trade creditors of Nakheel yesterday gave their support to the announcement that the developer would receive $8bn under the proposed restructuring to help pay contractors and restart stalled developments. "While we await all of the details of this restructuring proposal, and in particular that relating to trade creditors of Nakheel, on the face of it this announcement is encouraging progress," said Nelson Ogunshakin, the chief executive of the UK Association for Consultancy and Engineering (ACE). UK companies such as Halcrow, an engineering firm, are among those owed money by Nakheel.

ACE offered to assist with any debt negotiations between the developer and contractors. Nakheel has said the trade creditors will be offered full recovery of outstanding amounts as "agreed" between them. Lawyers say greater clarity is needed on how claims made by contractors will be agreed with Nakheel. They point out that disputes could occur if the two sides cannot decide on a final amount. @Email:[e-mail]