Full repayment is option for Dubai

Long-term deal sought to cover bank obligations say those present at talks between UK and Dubai leaders.

British banks are believed have exposure of more than $5 billion to Dubai World, which includes developers Nakheel and Limitless.

Dubai could fully repay all of the bank debt owed by the property and ports conglomerate Dubai World, financial leaders in London were told during the recent visit by two of the emirate's top officials. People present at talks between UK and Dubai leaders said the possibility of repaying all bank loans in full was discussed as a medium-term possibility during talks involving Sheikh Ahmed bin Saeed Al Maktoum and Mohammed al Shaibani of the Dubai Supreme Fiscal Committee.

"They made clear there were a number of options the Government of Dubai saw as feasible and desirable for Dubai World and repayment in full was one of them," said a person at the talks who declined to be identified because the meetings were private. The total debts of those parts of Dubai World earmarked for restructuring, mainly the property groups Nakheel and Limitless, amount to some US$22 billion (Dh80.76bn) after repayment of $4bn for Nakheel's sukuk.

The total includes bilateral and syndicated bank debt as well as unpaid bills to contractors. Though no breakdown has been given by Dubai World, analysts have estimated bank loans account for more than half the amount. British banks form the biggest single group by country of origin with exposure believed to be more than $5bn. The banks are due to meet Dubai World tomorrow in the first formal session of talks aimed at resolving the company's debt position.

"All options remain open and we believe a consensual process with the creditor banks remains the best way forward," a Dubai World spokesman said. Sheikh Ahmed and Mr al Shaibani were accompanied at the London talks by Augusto Sasso, an executive of the US restructuring firm Moelis and Co, which has been hired to advise the Dubai Government. Full repayment would be the preferred option for the creditors, represented by the British banks RBS, Standard Chartered, Lloyds and HSBC, with the regional banks Abu Dhabi Commercial Bank and Emirates NBD representing the Gulf.

Despite the funds from the recent $10bn bond issue backed by the UAE Central Bank, Dubai is not thought to be in a position to repay in full immediately. "We will have to see what timescale they [Dubai] are looking at as a feasible repayment period," one banker who asked to remain anonymous said yesterday. "If they can come up with a plan to repay over a period of, say, five years, with a commitment to maintain interest payments over that period, we would have to consider that."

The question of interest payments is crucial to the outcome of the talks because continuation of payment would mean banks do not have to make a provision for non-performing loans. This is especially important for UAE banks, the balance sheets of which have already been badly hit by write-offs from the Al Gosaibi-Saad affair in Saudi Arabia, the banker explained. In the London talks, the Dubai officials also ruled out forced assets sales as an option, especially any disposals of the emirate's most valuable assets such as the ports operator DP World, Emirates Airline and the Jumeirah hotels and leisure group.

Dubai World, under the chief restructuring officer Aidan Birkett of the UK accounting firm Deloitte, has some negotiating positions going into the talks. "They have got the 'big stick' of the new bankruptcy law, which would mean parts of Dubai World going into receivership and a scramble for assets in a liquidation. And they have got the leverage over interest payments," said a source close to Dubai World.

The banks, for their part, have the threat of substantially raising future lending rates for Dubai and other UAE borrowers if no consensual deal is struck. The meeting is expected first to address the issue of bilateral loans with individual banks that fall due imminently before moving on to syndicated loans and outstanding bond issues. "We're going to pitch up, hear what they say, give our views, wait for the formal extension request and work on a restructuring," a Dubai-based banker close to the talks told Reuters.

Cash to keep affected Dubai World businesses in operation can be paid from the $10bn bond only on the condition an extension agreement is reached. [e-mail]