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Dubai World announced that it had won support from “99% of its creditors”, putting it a step closer to restructuring its piling debt.

 

The government-owned organization said the support meant Dubai World is "well positioned" to close its debt-restructuring deal "in the coming weeks." If a final deal is reached, it would be the end of more than nine months of negotiations between the conglomerate and its creditors.

 

Dubai World rattled global markets after its debt-standstill announcement in late November 2009.

 

Nakheel, which is the government’s real-estate developer responsible for major projects such as the palm islands, has also been addressing settling massive debt and unpaid bills. In its announcement, Dubai's government said it was still focused on Nakheel's separate discussions with creditors over the unit's own debt restructuring.

 

Apart from real-estate, Dubai World has vast financial and port-operations holdings at home and abroad. Information leaked to the press last month indicated that the government was considering selling its prized assets to help settle the debt.

 

Banks listed on the Dubai Financial Market and in Abu Dhabi reacted positively reaching a 16 week high the day after the announcement. Emirates NBD climbed 5 percent, while Abu Dhabi-listed lenders also advanced. Abu Dhabi Commercial Bank added 3.7 percent and First Gulf Bank gained 4.8 percent.

 

September 13, 2010

 

 

Analysis and Forecast: Decreasing Risk

 

The importance of resolving the debt issue cannot be underestimated. Although he debt is technically commercial debt, the position of Dubai World within the Dubai government structure means a default may be interpreted as a sovereign default.

 

Overall, the situation is viewed positively. Ever since the standstill announcement was made, ongoing negotiating between Dubai World and the credits have not led to a solution.

 

It remains to be seen what the details of the plan is. However, it appears that most creditors have realized that without agreeing on a restructuring plan the situation will remain at a standstill. The deal appears to include full repayment so banks should not require new provisions.

 

Only once it is confirmed that all the creditors are on board and information obtained on how the capital will be raised will the situation be resolved. However, the information which appears to be largely true is the most positive piece of news since November 2009.

 

The figure below shows an estimate of the current Dubai World debt.