Dubai World repayment plan hits an obstacle

The National has learnt that Dubai World and its creditors have hit an obstacle in negotiations over a proposed standstill on the conglomerate's $22bn debt.

Dubai World and its creditors have hit an obstacle in negotiations over a proposed standstill on the conglomerate's US$22 billion (Dh80.8bn) of debt, The National has learnt. The Dubai Government-owned group said in November that it would seek to delay debt repayments to 97 banks as part of a plan to give Dubai World time to restructure while preventing creditors from pursuing legal action to recover what they are owed.

But informed sources said the banks had yet to agree to standstill proposals from Dubai World and the Dubai Financial Support Fund (DFSF), a government entity set up to distribute the proceeds of a $20bn bond programme to struggling state-owned firms. Dubai World has received about $6.2bn in aid from the DFSF. A central sticking point in negotiations has been the DFSF's plans to take security in exchange for money that it would pump into Dubai World to keep up interest payments once the standstill was agreed to, the sources said.

Securing fund injections against Dubai World's assets would make the DFSF a preferred creditor of the conglomerate, moving it in front of banks and other institutions in the company's repayment pecking order. The DFSF would be first in line to receive funds in the event of an insolvency, leaving banks with a smaller chance of recovering all of their funds. "The DFSF has put more than $6.2bn into Dubai World over the past 12 months," a spokeswoman said, adding that the injections were provided on "commercially reasonable terms".

"The DFSF and [Dubai World] are committed to concluding a mutually acceptable, consensual restructuring." Sources close to the Dubai Government said the DFSF and Dubai World had an interest in ensuring that creditors were given a fair shake, given the harm that anything less could have on the government's reputation. "The vital question is on what basis do you put money into Dubai World?" a Dubai World adviser said. "It has to be on a normal, sensible basis. All the stakeholders - the Dubai Government, Dubai World, Abu Dhabi and the banks - would recognise that."

Dubai World, which counts the property developer Nakheel and the ports operator DP World among its subsidiaries, fell into financial distress after revenues dried up at its property arms, which had taken on large debts to finance major infrastructure projects. Nakheel developed Dubai's Palm islands, as well as The World, a development of islands off Dubai's cost in the shape of a world map. Those developments have faced challenges during the downturn as investor appetite for Dubai property decreased amid price declines of 50 per cent since peaks in 2008.

A committee of seven creditor banks is leading negotiations with the Government over Dubai World's debt standstill and restructuring proposals. The committee is composed of five foreign banks and two local ones: HSBC, Lloyds, Royal Bank of Scotland, Standard Chartered, Bank of Tokyo Mitsubishi, Emirates NBD and Abu Dhabi Commercial Bank. * additional reporting by Frank Kane [e-mail]