First steps on the road to repayment

Talks between Dubai World and its scores of creditors are inching forward but the pace, or lack of it, is hardly surprising given the delicacy of the situation. Negotiations between Dubai World and the 94 creditor banks to whom it owes some US$22 billion (Dh80bn) on the businesses it has put up for "restructuring" are moving forward at a snail's pace. For all the media attention that accompanied a meeting on December 21 to address the issue, little was actually resolved at the Al Maktoum Hall in the Dubai Exhibition Centre that day.

There was no formal request for a standstill on Dubai World's debt, no appointment of a co-ordinating committee for the creditors, and certainly no agreement on terms or timetables for repayment of the troublesome debts. The absence of a high-profile deal, or an eyeball-to-eyeball confrontation, may disappoint the headline writers, but it is not unexpected. Such a big-number encounter is unusual in the world of international finance, and virtually unheard of in the Middle East.

The only precedents available for the armies of principals and their advisers do not suggest a quick fix for Dubai World's financial problems: Global Investment House in Kuwait took a year to reach a deal over $2bn of debts; creditors to the Saad and Al Gosaibi groups in Saudi Arabia, which defaulted in May last year, are still awaiting any solid proposals to repay the $20bn or so owed to about 100 banks.

But behind the scenes, and after a lull over Christmas and New Year, some significant progress has been made. Aidan Birkett, the corporate shake-out specialist from the UK firm Deloitte who was appointed as Dubai World's chief restructuring officer last November, is believed to be close to finalising a "roadmap" for future negotiations. He could present it to creditor representatives as early as this week.

The roadmap analogy is instructive. It suggests that Mr Birkett and Dubai World have a final destination in mind, presumably the resolution of the disagreement between Dubai World and its bankers on mutually acceptable terms. It also implies a long journey ahead, with different routes and diversions signposted along the way, and the possibility of a significant bottleneck, or even a multi-vehicle pile-up, along the route.

In the internet age, Mr Birkett has taken the process a stage further with a plan to make information on Dubai World's financial position regularly available to creditors on a secure website, a kind of GPS navigation system for the banks. Every journey requires a starting point, and in this case it will most likely be set this week. The banks have to formally name a co-ordinating committee for the talks. The composition of this "cocom" has been public for some time and will comprise four British banks: RBS, HSBC, Lloyds and Standard Chartered, together with the UAE banks Emirates NBD and Abu Dhabi Commercial Bank.

But it has yet to be officially appointed, and so far no single bank has taken the lead in talks with Dubai World. RBS, the Edinburgh-based bank that was taken over by the British government during the credit crisis, is thought to be the biggest creditor, and therefore lined up as the cocom leader. Bob Hedger, an experienced restructuring director at RBS, has been in Dubai for some weeks and will play a prominent role in talks with Mr Birkett, with whom he has worked on previous corporate restructurings.

Fees for the services of the cocom - a point of contention ahead of the December 21 meeting - have to be agreed, and the group also has to consider whether or not to take on more advisers. The international accounting firm KPMG is set to be formally appointed to advise the cocom, but there is a debate over whether it also needs independent investment bank advice, with Lazard mentioned as a possible candidate.

"The first meeting between the restructuring team can be very traumatic for the company," said one banking executive with experience of these situations, who requested anonymity. "The banks do not mess about, they are losing money every day the situation carries on, so they can be pretty hard." The fact that the creditors will be talking to Mr Birkett, who has been involved in some of the most high-profile and contentious restructurings of the past 20 years, will ease the trauma for Dubai World.

"He is sharp and determined, and will not crumble under pressure from any direction," said a Dubai World adviser. The most urgent item on the agenda will be the terms of the standstill agreement, the deal by which the borrower seeks to halt scheduled repayment of its debts and agree on a new repayment timetable. Dubai World has already said it wanted the standstill to run until the end of April, but the creditors will insist that interest payments are maintained over this period.

From the banks' point of view, this is crucial. If interest payments are halted unilaterally by the borrower, accounting convention means the principle sums have to be stated as provisions in their accounts, resulting in a de facto write-off and serious financial pain for the creditors. But a deal on interest payments looks possible, according to people close to the talks. Debtwire, the fixed income newswire owned by the Financial Times Group, cited two anonymous sources when it reported recently that the standstill request was likely to run to the end of April with interest payments maintained throughout. The Dubai Financial Support Fund (DFSF), set up by the Government of the emirate with assistance from Abu Dhabi, has indicated it will support Dubai World's interest payments and other operational costs only as long as a standstill deal is agreed.

Once these essential technicalities get the green light, the first milestone on Mr Birkett's roadmap is likely to be the $11bn or so of debt owed directly by Dubai World, rather than through property subsidiaries such as Nakheel and Limitless. This is divided into a $5.5bn syndicated loan and several bilateral lines of credit, according to Debtwire. "Dubai World's $5.5bn facility is split between a $2.1bn two-year term loan, a $1.95bn three-year term loan, $1bn of five-year debt and a $450 million three-year revolver," it said.

"The book-runners were Bank of Tokyo-Mitsubishi UFJ, Calyon, Emirates Bank, HSBC, ING, LloydsTSB, Mashreqbank, RBS and SMBC. The deal refinanced a $5bn one-year bridge facility used to fund Dubai World's investment in MGM Mirage, conducted through a special purpose vehicle called Infinity World Holding." A Dubai World spokesman yesterday indicated those figures were accurate. One banker said a "sensible" arrangement was likely to emerge over time, but warned that the "roadmap" process might hit obstacles from a couple of areas. However, because the Dubai Government is closely involved in the talks, both as the interest payers via the DFSF and as the ultimate owners of Dubai World, non-financial issues might throw up some unexpected complications.

Keeping order among the 94 creditors could also be a problem because "some of the smaller banks might simply want their money back, and not be interested in a broader deal. That could be a potential problem," the banker said. All those involved in the process agree that a final deal for the resolution of Dubai World's financial problems will take many months of painstaking negotiation and compromise.

The problem with roadmaps is that they have to be constantly updated to be of any practical use. @Email:[e-mail]