Dubai World's $9.5bn cash injection gets market thumbs-up

Markets show gains after news of fresh funds that will give a boost to stalled Nakheel projects.

Investors are seen on the trading floor at the Dubai International Financial Market March 25, 2010. The Dubai government unveiled plans to recapitalize its indebted Dubai World flagship and repay Nakheel bonds in full, injecting what it said was $9.5 billion in new funding, but without new aid from Abu Dhabi. REUTERS/Mohammed Salem (UNITED ARAB EMIRATES - Tags: BUSINESS) *** Local Caption ***  DUB01_DPWORLD-_0325_11.JPG
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Dubai is planning a multibillion-dollar injection of cash into its indebted conglomerate Dubai World, in a move intended to spark economic recovery in the emirate. The package was unveiled yesterday as part of proposals for restructuring Dubai World's US$23.5 billion (Dh86.31bn) of debt, owed to 97 international and regional banks and thousands of contractors and customers of Nakheel, the property developer behind the Palm and The World projects.

The proposals were positively received by investors across the world, but especially in the Middle East. All the key indicators improved, with UAE markets showing gains and other measures of financial health improving. Sheikh Ahmed bin Saeed Al Maktoum, the chairman of the Dubai Supreme Fiscal Committee, said the Government would put $9.5bn of new money into Dubai World. About $5.7bn would come from the loan already made by the Government of Abu Dhabi, with $3.8bn from its own resources.

Sheikh Ahmed also announced that the Government would convert $10bn of its loans in Dubai World and Nakheel into shares, effectively stepping aside to give other creditors priority in the restructuring talks. The proposals, which have to be agreed with creditors in talks that could last months, could be a boost to the Dubai economy. Aidan Birkett, the British financier leading the Dubai World restructuring, said: "If you fix Nakheel, you fix the real-estate sector, and you go a long way to fixing the Dubai economy."

Customers who have bought Nakheel properties are likely to welcome the proposals. The new cash will be used to complete near-term projects and accelerate completion and handover dates. Customers will be given the option of receiving credit equal to the full value of their instalment payments and swap into projects nearing completion at current market values. Those who have invested in longer-term projects who do not want to take up that option will be offered revised repayment schedules or five-year credit deals.

Contractors owed Dh500,000 or less will receive their payment in full, while those owed more will have the opportunity to receive 40 per cent of the value in cash and the balance in a tradable bond. Reaction among big banking creditors, with whom Dubai World now has to negotiate the details, was more cautious. One, speaking anonymously, said the proposals were short on detail, and major creditors might have to forgo future interest revenue under the new terms. They are being asked to change existing arrangements to new loan periods of five or eight years.