Dubai World's bellicose bankers sounding retreat

Grumblings over some of the terms of Dubai World's restructuring plans faded as quickly as they arrived.

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The Great Dubai Bankers' Rebellion didn't last very long, did it? About four days, actually, and two of those were over the weekend. From last Friday, when the first mutterings came from Dubai World's financial creditors that they were not very happy about some of the terms of the US$24.8 billion (Dh91.08bn) restructuring, until yesterday, when HSBC ran up the white flag and announced that, actually, the deal was "reasonable" and the bank was "comfortable" with it.

That is quite a volte-face by the bank and a huge step forward for Dubai in its efforts to get its finances back on the straight and narrow. We have not heard yet from the other banks on the co-ordinating committee (Cocom), and it is just possible that one of the big ones might hold out for better terms. But the odds are against a guerrilla campaign by Royal Bank of Scotland, Lloyds or Standard Chartered, now that HSBC has fallen in line behind the Dubai World proposals.

Likewise, it is unlikely that either of the two UAE banks on the committee, Abu Dhabi Commercial Bank and Emirates NBD, is going to quarrel with the Government-endorsed proposals. The possibility of a lone rearguard action by Bank of Tokyo-Mitsubishi is too remote to contemplate. So with the Cocom behind the deal, who can be against it? Although we have never seen a full list of the 90-plus banks that make up the creditors club, or a breakdown of the amounts they are owed, once you strip out the Cocom debts and divvy up the balance between the rest, the average amount owed must be in the tens of millions of dollars. Not enough to justify rocking the boat any further and perhaps endangering the whole proposal.

An aggrieved Asian bank might make new noises about what it views as inequitable treatment compared with the treatment of Nakheel's creditors, but Dubai World could afford to ignore that. There has been one striking feature of the creditors' position throughout the negotiations that began last November: there appear to be hardly any banks from the US among the lenders, or at least of sufficient size to justify their representation on the Cocom. Though financial institutions such as Citigroup, Bank of America and Goldman Sachs have been active as transaction advisers in Dubai, their compatriots have largely stayed away from the loan book.

On the whole, US banks tend to be more confrontational and proactive in restructuring negotiations. The fact that they were not significantly represented in the creditors' list meant the chances were slim that Dubai World would face legal action or asset grabs in the US. Holders of Nakheel sukuk will also get paid in full, so no drastic threat from that direction either. So how do you account for the sudden change of heart by HSBC, which will surely be followed by the other British banks on the Cocom?

Stephen Green, the chairman of HSBC, met with the most senior level of Dubai's leadership before the bank's statement yesterday. It must have been impressed upon him how much Dubai values the long-standing relationship with HSBC, which has been in the region for many decades via its subsidiary the British Bank of the Middle East. He must have also been offered the opportunity to participate fully in Dubai's financial recovery.

With all that persuasion, and the offer of payments in kind and shortfall guarantees on the table, Mr Green obviously took the view that his bank could live with the comparatively small write-offs involved in agreeing to the Dubai World proposals. Equally significant has been the role played by Lady Shriti Vadera in the latter stages of the negotiations. She is a confidante of Gordon Brown, the British prime minister, and was invited to give her advice on the progress of the restructuring talks some weeks ago. She obviously hit it off with the teams under the restructuring expert Aidan Birkett and the advisers to the Government from the US investment bank Moelis and Co.

The British aspect to the Dubai World saga cannot be overstated. Not only are British banks the four biggest creditors, but British contractors feature prominently among the list of unpaid contractors to Nakheel. Lady Vadera in effect represented the government that owns majority stakes in two of those banks and which has been vigorously lobbying on behalf of the contractors to see that some of their bills are paid. Once she was involved, it was far easier to dovetail the interests of Nakheel and Dubai World creditors. The deal that eventually emerged reflected this merger of interests.

That, too, seems to have been the final argument that persuaded HSBC to say yes to the deal yesterday. The bank bought Mr Birkett's most convincing rationale for the proposals: "If you fix Nakheel, you fix the real estate sector, and if you fix real estate, you fix Dubai." A fixed Dubai is a much better business prospect for HSBC, and the other creditors, than a broken one.