Dubai lenders negotiate debt recovery

Dubai World’s lenders are meeting in Dubai on Monday to decide whether to agree to a six-month standstill request on the company’s $26-billion debt pile.

The steering committee is led by Standard Chartered, HSBC, Lloyds, Royal Bank of Scotland, and local lenders Emirates NBD and Abu Dhabi Commercial Bank but up to 95 lenders are expected to join the meeting.

Royal Bank of Scotland will chair the steering committee and is also the agent bank on Dubai World’s $5.5 billion loan, bankers said.

The banks have appointed KPMG to audit proposals received from Dubai World.

The government of Dubai, acting through the Dubai Financial Support Fund appointed Aidan Birkett of Deloitte as Chief Restructuring Officer for Dubai World along with Moelis & Co and Rothschild.

Here are various ways in which the negotiations could unfold:

a) Stanstill for Dubai World agreed. Lenders agree to Dubai World’s $26 billion standstill request: Under normal circumstances this would need the consent of all lenders, but bankers said lenders are unlikely to object due to a lack of alternatives.

Creditors will then embark on a lengthy and complex debt rescheduling albeit with several conditions attached.

Dubai World’s lenders will want to take additional security over existing unsecured loans to cover the $16 billion of Dubai World’s debt that is not covered by Abu Dhabi’s $10 billion bailout.

This is likely to take the form of an explicit guarantee from the UAE Federation or Abu Dhabi, bankers said, adding that property developers Nakheel and Limitless have land banks but relatively few saleable assets.

Existing loans will be partially repaid through any asset sales and the remaining debt will be rescheduled by stretching the loans over a longer maturity and putting in regular amortising repayments to match cashflow.

Some of Dubai World’s companies including Nakheel may also need new money to complete unfinished projects in order to generate more cash to repay debt, bankers said.

b) Stanstill for Dubai World rejected. Dubai will have to repay all outstanding obligations as they mature: This is deemed virtually impossible as Nakheel and Limitless simply do not have sufficient money to repay their debts, bankers said.

Creditors could then try to enforce security— taking over the companies or selling the assets. This would be difficult on Dubai World’s $5.5-billion loan as the covenants are weak and do not offer lenders robust protection, bankers said.

c) New bankruptcy laws evoked.