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Dubai World: A light at the end of the tunnel

Dubai World: A light at the end of the tunnel

The saga continues, but the beleaguered company’s Thursday meeting with creditors could herald a positive new phase for the both the UAE economy and the whole region.

July 22, 2010 1:36 by

Pivotal talks this week on restructuring the debts of Dubai World could be a trigger for investors to return to the Gulf region, under a cloud since the state firm suspended bond payments last year. Dubai World has invited creditors to a meeting on Thursday to offer details on its multi-billion dollar debt restructuring, the first session to include all lenders since December 2009.

The debt-laden conglomerate requires support for its restructuring deal from lenders representing two thirds of the debt owed to the banks. Seven core banks, which represent 60 percent of Dubai World’s debt, have already agreed to the deal.

As such, analysts expect the deal to go through and Dubai assets may look cheap as a result.

“Once this Dubai World restructuring is done, the economy will be finding the bottom,” said Okan Akin, emerging corporate strategist at RBS in London.

“We would expect Dubai’s five-year CDS (credit default swap) levels to come down to 400 bps — even below — once the restructuring process is complete.”

The cost of insuring Dubai’s debt against default in the five-year CDS market is close to 500 basis points, one of the highest in the world, and twice the levels seen before the debt standstill. Dubai stocks are close to six-year lows.

The emirate’s property-dominated economy collapsed in the aftermath of the financial crisis and the debt standstill effectively paralysed credit. Analysts say the restructuring, in addition to recent regulatory changes, will restore confidence in lending to Dubai’s property sector, even if growth will be slower than in the past.

The IMF forecasts growth contraction for Dubai of a little over 0.5 percent and growth for Abu Dhabi at 3.7 percent this year, but has said its numbers are conservative.

“The finalisation of the complicated Dubai World debt restructuring process will prove to investors that the Dubai government has the support of creditors going forward,” said Akin.

“The stabilisation of Dubai’s real estate market … would aid further strengthening of investor confidence.”

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