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Ghosts of Dubai World’s past may return to haunt

Dubai World

The emirate is once again dreaming big with plans for a city centre canal and a $1 billion replica of India's Taj Mahal.

November 22, 2012 9:00 by

Dubai World, the state-linked entity whose massive debts brought the emirate to the brink of collapse in 2009, faces the first repayment in its restructuring deal in three years time and creditors are once again growing restless.

With none of the promised asset sales materializing – Dubai needs to raise $4.4 billion to meet the first obligations in the five and eight-year debt repayment deal – worries are emerging another drawn-out restructuring is inevitable.

“When we speak to the government, they say there is no rush and it shows everything is under control. However, as a banker, I’m worried as I don’t know where the money is coming from,” said one senior banker at an international lender owed money by Dubai World, speaking on condition of anonymity due to the sensitivity of the subject.

Another senior Dubai-based banker said: “Most of the repayment is contingent on asset sales, so if they are not going well, then it will be hard to repay these debts at par.”

Such concerns contrast with an apparent return of Dubai’s swagger.

The emirate is once again dreaming big with plans for a city centre canal and a $1 billion replica of India’s Taj Mahal. And some argue Dubai World will be able to meet the $4.4 billion first payment due in 2015.

“It’s been restructured and it’s working well in the sense of how it was intended to over the last couple of years,” said Rick Pudner, chief executive of Dubai’s largest lender, Emirates NBD, which is 56 percent owned by the government and has one of the largest exposures to Dubai World.

“I’m very comfortable that Dubai will be in a position to meet its obligations,” Pudner said during the Reuters Middle East Investment Summit.


However, signs of concern over Dubai’s debt burden are starting to surface.

Standard Chartered, another major Dubai World creditor, said in a Nov. 7 note that while a rebound in key sectors would help it meet obligations, Dubai entities have nearly $50 billion of liabilities between 2014 and 2016 and “given the lack of major asset sales or haircuts, there has been little progress on the deleveraging front.”

In the Dubai World restructuring proposed to banks in July 2010, the firm said it needed time for assets to recover in value. Immediate sales would yield between $6.4 and $10.4 billion, but a delayed timeframe would give a return of between $15.1 and $19.4 billion, it said.

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