Dubai World Said to Present ‘Standstill’ Deal in Early January

By Arif Sharif and Haris Anwar

Dec. 22 (Bloomberg) -- Dubai World will present a standstill offer to banks in early January as the state-owned holding company attempts to restructure about $22 billion of debt, three bankers who attended a presentation on the matter yesterday said.

Dubai World, which owns property unit Nakheel PJSC, port operator DP World Ltd. and private equity company Istithmar World PJSC, told lenders it needs time to allow its assets to recover from the drop in value following the credit crunch, said the bankers, who declined to be identified because the meeting was private. Some assets may be sold over time to repay debt, they said.

“They need to sit down and talk it over in more than one meeting,” said Hesham Bakry, Dubai-based institutional sales manager at Al-Futtaim HC Securities Co. “The positive thing is that they are meeting and both parties want to find a better way to handle this issue. It should have happened a lot earlier.”

Dubai World, one of the emirate’s three main state-owned business groups, announced Nov. 25 it would seek to freeze or delay repaying debt until at least May 30. The company said Dec. 1 it wants to alter terms on about $26 billion of debt, including of property unit Nakheel PJSC, which is building palm tree-shaped islands off the emirate’s coast. It repaid $4.1 billion on an Islamic bond from Nakheel last week after Dubai received a $10 billion loan from Abu Dhabi.

‘Orderly’ Restructuring

Dubai World will work with creditors to reach a standstill agreement on its borrowing “in an orderly way,” it said in a statement following yesterday’s meeting. Dubai’s government promised “financial support to cover working capital and interest expenses to ensure the continuity of key projects” if a standstill is achieved, according to the statement.

The cost of protecting Dubai government debt from default fell 2 basis points to 444, according to CMA DataVision prices for credit-default swaps, contracts that fall as perceptions of credit quality improve. A basis point is equivalent to $1,000 a year on a contract protecting $10 million of debt.

The terms of government support for Dubai World have yet to be agreed upon, two bankers involved in the talks said ahead yesterday’s gathering. The lack of an accord would lead to a delay in making the standstill request, they said.

The complexity of Dubai World Group and its funding structure are to blame for the delay, one banker said ahead of the meeting, citing a Dec. 18 letter from the company’s Chief Restructuring Officer Aidan Birkett about the agenda for the gathering. About 100 bankers attended the presentation at the Dubai International Convention and Exhibition Centre.

Borrowing to Diversify

Dubai, the second-biggest of seven states that make up the United Arab Emirates, and its state-owned companies borrowed at least $80 billion until last year to transform the emirate into a tourism and financial hub. The seizure of debt markets after the onset of the global credit crisis led to a 50 percent decline in property prices in the city and hampered the ability of Dubai-based companies to raise new loans.

Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate’s businesses may need help making payments, Morgan Stanley said earlier this month. Dubai Holding LLC, Dubai Holding Commercial Operations Group LLC, Borse Dubai Ltd. and Dubai Sukuk Center Ltd. may join Dubai World in restructuring debt, Morgan Stanley analysts Mohamed W. Jaber and Paolo Batori wrote in the report.

Dubai set up a financial support fund earlier this year to help state-related companies facing problems raising cash amid the credit crisis. It raised $10 billion for the fund in February by selling bonds to the U.A.E. central bank and another $5 billion in November through a bond sale to Abu Dhabi government-controlled banks.

U.A.E. Minister of Economy Sultan bin Saeed al-Mansouri said further federal government support for Dubai should be “studied” properly. “Each issue has to be studied in a proper manner, evaluated and based on that an answer will be provided at the federal level or the local level,” al-Mansouri told reporters in Abu Dhabi today when asked whether the federal government will extend more financial support to Dubai.

To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net; Arif Sharif in Dubai at asharif2@bloomberg.net