Dubai Group, part of the Dubai government investment vehicle Dubai Holding, is reported to have proposed a new solution to its US$ 10 billion debt problem. US$ 6 billion of those are bank debts. Talks on repaying the debt have stalled two months ago.
Under a new plan put forward by Dubai Group, lenders will be offered new terms based upon the level of security they currently hold. The group is understood to offer interest payment of one percent for an extension of its debt of up to twelve years for unsecured creditors, and higher rates and more favourable terms for secured loans.
Dubai Group has not paid interest on its debt since August 2010, with the amount outstanding likely to top $1 billion by the time any deal is reached, sources told Reuters in November 2011.
April 12, 2012
Analysis and Forecast: Decreasing Risk
The very fact that Dubai Group has agreed to restart talks with creditors is seen as a positive step. The collapse of talks earlier in the year was a blow to the confidence that was built over the preceding months. The revival of talks at the instigation of the Dubai government gives creditors greater confidence in their likelihood of having their debts paid off.
Sources familiar with the situation has indicated that the group is unlikely to offer substantially more favourable terms in the talks. Details of the proposal are not yet available. Whilst at those terms the creditors expect to make a loss on their capital, the step is a positive one that will help return a certain degree of confidence in Dubai, particularly in comparison with other sovereign debt crises around the world. Added to this are attempts by Dubai entities to off-load some assets like the Jumeirah Essex Hotel in New York, gives further confidence that Dubai is getting more proactive in addressing its debt issue.