March 25 (Bloomberg) — Dubai will support Dubai World’s debt restructuring with $9.5 billion as the state-owned holding company asks creditors to wait up to eight years to get all their money back.
The additional funds double to $20 billion the amount the government paid to the emirate’s holding company after it said in November it would seek to delay repaying debt until May. That announcement sparked a plunge in developing-nation stocks and doubled the cost to protect against a default by Dubai.
“Our financial support demonstrates our commitment to finding a fair and equitable solution for all stakeholders in the wider interest of the economy,” the emirate’s Supreme Fiscal Committee chairman, Sheikh Ahmed Bin Saeed Al Maktoum, said in an e-mailed statement today.
Dubai’s benchmark index surged 3.5 percent to 1,829.83, the highest intraday level since Jan. 10, at 11:00 a.m. in the emirate. Emaar Properties PJSC, developer of the world’s tallest skyscraper, increased 7 percent, and Emirates NBD, the United Arab Emirates’s biggest bank by assets, rose to a three-month high.
Dubai World is seeking to renegotiate $23.5 billion in debt with creditors, it said in an e-mailed statement today. The company said it owed $14.2 billion to lenders other than the government at the end of 2009.
Struggle to Refinance
Dubai World and property units Nakheel and Limitless LLC used loans to finance real-estate projects such as palm-shaped islands off the emirate’s coast. They struggled to refinance the projects after the global credit crunch made banks more reluctant to lend.
The government’s support “will be funded by $5.7 billion remaining from the loan previously made available from the government of Abu Dhabi and from internal Dubai government resources,” Sheikh Ahmed said in the statement today. The restructuring process is “expected to take several months to implement,” he said in the statement.
Dubai will supply Dubai World with $1.5 billion to support its new business plan and will convert $8.9 billion in debt to equity, the government said in the statement. Nakheel will receive $8 billion in funding and $1.2 billion through the conversion of debt held by the government to equity.
Nakheel’s bank creditors will be asked to restructure their loans to the company at commercial rates and trade creditors will be offered a cash payment and tradable security. The company’s Islamic bonds, or sukuk, due in 2010 and 2011 will be paid on maturity if the proposal receives enough support from creditors, the Dubai government said.
“The government announcement is definitely a confidence builder,” said Akram Annous, deputy fund manager at Al Mal Capital PSC in Dubai. “The upside surprise is that they will continue to pay sukuk obligations when they come due, which allows them to avoid the hassle of having to deal head on with public investors, something they have been doing with trade creditors and banks.”
Dubai, the second-biggest of seven states that make up the U.A.E., and its state-owned companies ran up debt to transform the sheikhdom into a tourism, trade and financial services hub. The International Monetary Fund estimates Dubai has outstanding loans of $109.3 billion, some of it used to fund a property boom that ended in 2008. The seizure of debt markets after the credit crisis hampered the ability of Dubai-based companies to raise loans and led to a 50 percent decline in property prices.
Dubai World will present creditors a “fair” plan to preserve long-term relations with banks and contractors, Sheikh Ahmed said March 16. U.A.E. Central Bank Governor Sultan bin Nasser al-Suwaidi said March 15 Dubai isn’t likely to need more central bank aid.
“The tribunal process remains available to protect the companies, their creditors and other stakeholders,” the government said in the statement today.
Nakheel, one of the emirate’s three main state-owned business groups, paid $4.1 billion to settle an Islamic bond in December after Dubai received a $5 billion loan from Abu Dhabi, the U.A.E.’s richest emirate that holds about 7 percent of the world’s proven oil reserves. The central bank and two Abu Dhabi- owned banks also lent Dubai’s financial support fund $15 billion in 2009 to help state-related companies.
More than 90 banks are owed money by Dubai World. Seven of its biggest creditors, HSBC Holdings Plc, Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc, Standard Chartered Plc, Bank of Tokyo-Mitsubishi UFJ Ltd., Emirates NBD PJSC and Abu Dhabi Commercial Bank PJSC, are negotiating with Dubai World on behalf of the lenders, according to bankers.
Moelis & Co., the U.S.-based advisory firm started by former UBS AG investment banking President Kenneth Moelis, and investment bank NM Rothschild & Sons Ltd. are advising the Department of Finance on the Dubai World restructuring. AlixPartners LLP is separately advising the company. In December, Aidan Birkett, a partner at Deloitte LLP, was appointed Dubai World’s chief restructuring officer.