Dubai World closes in on $10.5bn debt settlement extension

Will enhance the emirate’s ability to raise new capital for another round of rapid growth, 5 years after debt crisis nearly derailed plans.

Dubai World (DW), the indebted conglomerate, is close to a deal that will extend repayment of US$10.5 billion of borrowings until 2022, and enhance the emirate’s ability to raise new capital for another round of rapid growth.

An adviser to DW, who declined to be identified because the talks with bank creditors are confidential, said: “A deal is very close. There are around 100 banks involved so the process of signing them all up might take some time, but it’s likely a deal will be confirmed this year.”

He was speaking after the $2.6bn sale by DW of its Jebel Ali free zone (Jafza) last week to DP World, a deal which virtually seals the conglomerate’s ability to repay the first tranche – around $4.4bn – of its total debts ahead of schedule.

“They [DW ] have got through the hardest part of the asset disposal plan, without selling ownership of any strategic assets – like Jafza – outside Dubai. The crown jewels are still intact,” the adviser added.

Once signed, DW’s new deal with creditors will replace the restructuring agreement worked out following the 2009 financial crisis, when the conglomerate’s decision to seek a standstill on debt repayments threw global markets into turmoil.

The Jafza deal gives DW a total of nearly $3.5bn of financial firepower in its talks with creditors. On top of the cash payment of $2.6bn from DP World, the global ports group also assumes responsibility for some $856m of debt owned by DW, most of that a $650m sukuk repayable in 2019.

DW is considering using the 80 per cent stake it has in DP World – worth some $13bn – as collateral for all or part of its long-term debts, and it still has other assets it can sell, mostly a mix of hotel and real estate interests held by the Istithmar World subsidiary.

Over the past year, the most valuable assets of the DW portfolio have been sold to other cash-rich parts of Dubai Inc, easing concerns about debt levels in the emirate.

Ahmed Shaheen, Dubai-based associate director of investment firm Exotix, which deals in “distressed debt”, said: “DW has taken a very proactive stance towards asset realisations – Atlantis, Palm Utilities, Gazeley and now EZW [Economic Zones World, the owner of Jafza]. This is a demonstration of the company’s willingness and ability to meet the upcoming 2015 maturity, but it more importantly breeds goodwill among its lenders as it attempts to restructure the 2018 maturity.”

Mr Shaheen believes there will be a knock-on effect as Dubai seeks to raise capital for another round of rapid expansion. In addition to Expo 2020, which could cost as much as $43bn to develop, other “mega-projects” have also been announced by government-related enterprises (GREs) in the emirate, like Dubai Canal, the Mall of the World and Mohammed bin Rashid City, as well as the ongoing construction of Al Maktoum Airport.

“At the macro level, there will be some positive reverberations across the Dubai GRE spectrum, to the benefit of companies like Emaar, Nakheel, Meraas and Dubai Properties Group, whose fortunes are more directly related to the delivery of the Expo 2020,” Mr Shaheen said.

The ability of Dubai’s GREs to exploit international credit markets was recently demonstrated by the Meraas subsidiary Dubai Parks and Resorts, which signed a deal for a Dh4.2bn loan facility arranged by the US investment bank Goldman Sachs and a number of regional banks.

This was in addition to Dh2.5bn of equity Dubai Parks is looking to raise in a forthcoming initial public offering on the Dubai Financial Market to fund a $10bn theme park development.

More flexible regulatory rules mean that Dubai entities seeking to raise capital do not have to sell a majority of their equity on public markets.

One investment banker, who did not want to be named, said: “Dubai has shown in the past few months it can raise capital in equity markets, as well as by bank borrowing and fixed income finance. The ability to monetise its assets is increasing.”

However, Dubai still has a large amount of debt by some calculations. The IMF said recently its estimate of total government and government-related debt remained at $142bn, compared with GDP of around $100bn. The IMF is in the process of reassessing its estimate of total Dubai debt to take recent repayments and refinancings into account.

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