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Lenders travel in hope to Dubai debt meeting

Creditors hope for sweeter deal.

July 22, 2010 11:41 by

Over-stretched Dubai plays host to some of its bank creditors on Thursday, eight months after the emirate’s flagship state conglomerate Dubai World hit the financial buffers.

A core group of banks has already agreed broad terms for a restructuring deal under which billions of dollars of Dubai World loans will be repaid over five to eight years at interest rates of between 1 and 3 percent.

Some banks may hold out for better terms at the first all-bank meeting of Dubai World creditors since December.

Investors in the region are hoping the meeting passes off without any negative publicity.

“All the news over the past couple of weeks has signalled Dubai World will reach a final resolution with banks, so that outcome is already priced in,” said Marwan Shurrab, vice-president and chief trader at Gulfmena Alternative Investments.

“But anything negative would likely see aggressive selling in the market.”

Dubai World’s $14.4 billion of bank debt ran into trouble as the financial crisis brought a global real estate boom to an abrupt halt.

It represents just a fraction of Dubai’s liabilities — estimated at over $100 billion of syndicated and bilateral loans in a Reuters poll — run up as the Gulf Arab state built man-made resort islands, the world’s tallest building and other lavish projects.

Wealthy fellow United Arab Emirates member Abu Dhabi has already stepped in to bail out Dubai.


Dubai World requires support from lenders representing two thirds of the debt owed to the banks. The seven core banks which have already agreed represent 60 percent.

Dubai World has signalled that the terms presented in the May proposal are unlikely to fundamentally change on Thursday, but banks may still be holding out for a sweeter deal.

“We don’t expect anything major, we know the proposal already. Some banks may express their unhappiness that others receive preferential treatment,” said an executive at a regional creditor bank.

“We are coming to see if there’s any room for improvement in the terms – but we don’t really expect it.”

As with the parallel restructuring underway at Dubai World property unit Nakheel, whose lenders met in Dubai on July 14, bankers are likely to be given a deadline to respond.

Creditors who do not want to make the trip can attend workshops in London, Hong Kong and Dubai to put questions to Dubai World’s advisers.

Creditors have recourse to a special tribunal set up in December to hear their grievances, but no banks have taken this route so far.

“If this week’s discussions are successful, there might not be any disputes of that (restructuring) kind,” said Anthony Evans, chair of the special tribunal in an interview with Reuters earlier this week.

With the largest bank lenders already on board, creditors with smaller debts are unlikely to pursue potentially costly and time-consuming proceedings. Another option is for lead banks to take on the debt of the smaller banks to avoid delaying agreement, experts said.

“The disproportionate amount of time and resources this process consumes is just not worth it (for the banks),” said one regional analyst who declined to be identified. The seven member coordinating committee of banks comprises HSBC Lloyds, Royal Bank of Scotland, Standard Chartered, Bank of Tokyo Mitsubishi, and local lenders Emirates NBD and Abu Dhabi Commercial Bank.

(By Rachna Uppal ,Additional reporting by Nicolas Parasie and Matt Smith in Dubai and Carolyn Cohn and Natsuko Waki in London; Editing by Andrew Callus)

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