Dubai World in reorganisation

The group seeks a six-month 'standstill' as the emirate also announces it has lined up a $5bn bond with two Abu Dhabi-owned banks.

Dubai World, one of the emirate's biggest holding companies, says it is reorganising and seeking an agreement with creditors for a six-month extension on its debt. Dubai World had previously appointed AlixPartners, a turnaround firm that worked on the bankruptcy of General Motors, to organise an internal shake-up. The company, which owns the ports operator DP World and the property developer Nakheel, said last month that it had eliminated 12,000 jobs as part of a three-year effort to save US$800 million (Dh2.93 billion). The latest announcement was a surprise to many observers, shaking international bond markets, as the firm worked to handle about $60bn in debts and other liabilities in its current form. The cost of insuring Dubai debt rose by about 35 per cent after the announcement. Credit default swap spreads, which measure perceptions of the likelihood of default, jumped to 4.2 per cent from about 3.2 per cent the day before. Meanwhile, the price of Islamic bonds issued by Nakheel fell by more than 18 per cent. Its parent company, Dubai World, is the major contributor to an estimated $85bn in debt owed by Dubai and its government-controlled companies. "What happened took investors by surprise," said Mohammed Yasin, the chief executive of Shuaa Securities in Dubai. "It is too early to judge because it looks like a work in progress and the news is coming out in bits and pieces. "If there is one good thing, it is that the timing [ahead of the Eid al Adha holidays] gives everybody time to reflect." Dubai World has not defaulted on its debts, which include Nakheel's $3.5bn Islamic bond that comes due on December 14. Even if Dubai World reaches a standstill agreement with creditors, analysts say there will be major challenges ahead. The market reaction to the Dubai World announcement was in notable contrast to the generally positive reaction to the news early yesterday that Dubai had secured $5bn in bonds from two Abu Dhabi banks as part of its $20bn bond programme aimed at supporting government-controlled firms. The $5bn is to be split evenly between National Bank of Abu Dhabi and Al Hilal Bank, both of which are majority-owned by the Abu Dhabi Investment Council, a sovereign wealth fund. Dubai has already borrowed $1bn from the banks under the programme and plans to borrow the remainder over the coming year. Both the Dubai World restructuring and the $5bn bond programme were announced after local stock markets closed. The Dubai Financial Market rose 1.1 per cent yesterday, while the Abu Dhabi Securities Exchange index rose 0.56 per cent. The financial markets are scheduled to reopen on Monday after the Eid holidays. * with additional reporting by Uta Harnischfeger [e-mail]