Dubai World result reflects well on all sides

It shows what Dubai can do when it sets its focus on a project and is a testament to the skills of the negotiators involved, writes Frank Kane.

It was all relatively painless in the end. Dubai World got the agreement in principle of its main creditors after only a few months of negotiation, a limited amount of horse-trading and some minor but important concessions to the creditors. Those who predicted years of wrangling were simply wrong. It shows what Dubai can do when it sets its focus on a project and is a testament to the skills of the negotiators involved.

Any number of issues might have derailed the process at any stage - from the Dubai Government's insistence on preferential treatment to the local banks' worries about high financial costs - but they were all neatly sidestepped. Built into the agreed proposals is a range of optional extras that allow creditors to "mix and match" a solution to suit their own circumstances. Big global lenders, UAE banks and smaller international institutions will all have to write off some of their principal, but the terms are flexible enough not to be noticed on their balance sheets too much.

Some of the co-ordinating committee's banks dug their heels in a little but were eventually persuaded, perhaps by the prospect of tribunal proceedings. How quickly the public perception has changed. The dreaded "haircut" does not feature at all. It is quite a triumph for the image-moulders involved in this process that this phrase has slipped off the agenda completely. Local banks have done pretty well. Those that take up tranche B option 3 will receive 2 per cent as things stand, although this will decrease if interest rates in the West rise to near-local levels, as is predicted.

Now the lawyers and credit committee members will go over the fine print and report back in time for an all-bank meeting and detailed term sheet next month. By the turn of the year, we may be wondering what all the Dubai World fuss was about. [e-mail]