Progress steady on the road to consensus

The day of Dubai World's restructuring announcement last year has become known by as "25/11", but since then the negotiating process has steadily progressed towards yesterday's deal.

In financial circles, the day of Dubai World's restructuring announcement last year has become known by the sinister epithet "25/11", but since then the complex negotiating process has steadily progressed towards yesterday's deal. World markets were shaken when the restructuring was announced, on fears it would herald a wider crisis in sovereign debt. While the Greek crisis seemed to confirm those fears, the talks over Dubai World's debts have run pretty smoothly.

There were key moments in the past seven months when the armies of stakeholders in Dubai World faced obstacles that might have derailed a deal, but they overcame them one by one. In December, the tone was set when the US$4.1 billion (Dh15.05bn) Nakheel debt was repaid in full and on time, with the help of funds from the UAE Central Bank. Markets were reassured that the capital was standing behind Dubai.

In February, it emerged that talks had stalled on the insistence of the Dubai Government, itself a major creditor, that it should receive preferential treatment in repayment. Bank creditors were angry that they would have to stand at the back of the queue. That deadlock was broken in March when the Government dropped its insistence that it be repaid first, effectively going to the back of the line.

The concession paved the way for the announcement of details of the restructuring proposals on March 24. These were met with general approval from international markets, and contractor creditors of Nakheel, Dubai World's largest property unit. Observers were pleasantly surprised there was no immediate cut in principal repayments and that the Dubai Government was willing to equitise its debt, effectively injecting $6bn into Dubai World, as well as pledging $3.6bn in new money.

Some of the big bank creditors felt they were being short-changed by the proposals. But HSBC, a major creditor and member of the co-ordinating committee, changed its mind after a meeting with Dubai leaders, and agreed to the terms. There was some last-ditch resistance from creditors over details of the terms, with Abu Dhabi Commercial Bank in particular worried that the UAE's high cost of borrowing made the terms financially unattractive.

Among international creditors, the Royal Bank of Scotland, which led the co-ordinating committee of creditors, is said to have adopted a tough stance in the final stages, hoping to wrangle a few basis points out of Dubai World. Majority owned by the UK government, the RBS would have to be seen to have counted every last cent. Shortfall guarantees, payments in kind and fine-tuning of interest levels answered those last concerns, paving the way for yesterday's deal.

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