Dubai World in $26 bln debt restructure
Dec 01, 2009 at 08:23
DUBAI - Dubai World said early on Tuesday morning it is in talks to restructure $26 billion in debt - roughly the size of Lebanon’s economy - but the news did little to calm jittery investors still trying to figure out whether the glitzy emirate is headed toward financial ruin or recovery.
The state-owned conglomerate said it has started talks with creditors on a “constructive basis” and the restructuring will involve asset sales, breaking a six-day silence after shocking investors last week when it asked for more time to pay its debts.
Dubai and Abu Dhabi bourses plunged more than 7 percent soon after opening on Tuesday, their second day of steep declines, as ratings agency Moody’s said the dive in markets highlighted fears that the emirate could default on its debt.
Dubai World is at the centre of the emirate’s debt woes, with around $60 billion of the city’s $80 billion debt.
The Dubai government said on Monday it would not bail out Dubai World, which owns ports, hotels and man-made islands, clarifying that while the sprawling enterprise is owned by the government, its debt was not guaranteed by the government.
Analysts said the Dubai government’s move to distance itself from its struggling companies is a far cry from the boom years when these expansion-hungry firms gobbled up money from foreign and regional investors with the unwritten understanding these investments were backed by the emirate.
“They had never actually stated that Dubai World was sovereign. However, all of these Dubai entities were pitched to investors as being fully backed by the government,” a Dubai analyst, who asked not to be named, told Maktoob Business.
“It was implicit, not explicit, I agree. But there was an impression given that these investments were sovereign.”
Dubai government’s announcement that Dubai World is looking for a six-month “standstill” on its debts and that it will leave the conglomerate to fend for itself has shocked investors after weeks of upbeat talk from government officials.
"I am confident that the worst has passed, and that as the global economy stabilises, Dubai today is well placed,” Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum told investors on Nov. 9.
Two weeks later the government announced the Dubai World debt standstill, rattling world markets, roiling investor sentiment and sharply increasing the cost of insuring the debt of Dubai and other cities in the region.
Dubai World said on Tuesday it has hired deal maker Ken Moelis to advise on the debt restructuring, while Rothschild will continue as financial advisor to Dubai World.
“It is envisaged the restructuring process will be carried out in an equitable way for the overall benefit of all stakeholders,” Dubai World said in a statement released just after midnight.
Dubai World said about $6 billion of the debt is related to Nakheel's Islamic bond, or sukuk, asking holders of the sukuk to appoint representatives to start negotiations.
It said the restructuring will not include subsidiaries of Dubai World that are on a stable footing, including Infinity World Holding, Istithmar World and DP World.
Matt Robinson, an analyst at Moody’s, said in an audio broadcast on Tuesday that markets were worried that a fire sale of Dubai World’s foreign assets, especially those in Britain, could stump a recovery in global commercial real estate markets.
"The impact on investors' confidence could prove disastrous," he said, adding that the Dubai crisis "at the very least reminds that the full impact of the financial crises might not be over".
Dec 01, 2009 at 08:23
DUBAI - Dubai World said early on Tuesday morning it is in talks to restructure $26 billion in debt - roughly the size of Lebanon’s economy - but the news did little to calm jittery investors still trying to figure out whether the glitzy emirate is headed toward financial ruin or recovery.
The state-owned conglomerate said it has started talks with creditors on a “constructive basis” and the restructuring will involve asset sales, breaking a six-day silence after shocking investors last week when it asked for more time to pay its debts.
Dubai and Abu Dhabi bourses plunged more than 7 percent soon after opening on Tuesday, their second day of steep declines, as ratings agency Moody’s said the dive in markets highlighted fears that the emirate could default on its debt.
Dubai World is at the centre of the emirate’s debt woes, with around $60 billion of the city’s $80 billion debt.
The Dubai government said on Monday it would not bail out Dubai World, which owns ports, hotels and man-made islands, clarifying that while the sprawling enterprise is owned by the government, its debt was not guaranteed by the government.
Analysts said the Dubai government’s move to distance itself from its struggling companies is a far cry from the boom years when these expansion-hungry firms gobbled up money from foreign and regional investors with the unwritten understanding these investments were backed by the emirate.
“They had never actually stated that Dubai World was sovereign. However, all of these Dubai entities were pitched to investors as being fully backed by the government,” a Dubai analyst, who asked not to be named, told Maktoob Business.
“It was implicit, not explicit, I agree. But there was an impression given that these investments were sovereign.”
Dubai government’s announcement that Dubai World is looking for a six-month “standstill” on its debts and that it will leave the conglomerate to fend for itself has shocked investors after weeks of upbeat talk from government officials.
"I am confident that the worst has passed, and that as the global economy stabilises, Dubai today is well placed,” Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum told investors on Nov. 9.
Two weeks later the government announced the Dubai World debt standstill, rattling world markets, roiling investor sentiment and sharply increasing the cost of insuring the debt of Dubai and other cities in the region.
Dubai World said on Tuesday it has hired deal maker Ken Moelis to advise on the debt restructuring, while Rothschild will continue as financial advisor to Dubai World.
“It is envisaged the restructuring process will be carried out in an equitable way for the overall benefit of all stakeholders,” Dubai World said in a statement released just after midnight.
Dubai World said about $6 billion of the debt is related to Nakheel's Islamic bond, or sukuk, asking holders of the sukuk to appoint representatives to start negotiations.
It said the restructuring will not include subsidiaries of Dubai World that are on a stable footing, including Infinity World Holding, Istithmar World and DP World.
Matt Robinson, an analyst at Moody’s, said in an audio broadcast on Tuesday that markets were worried that a fire sale of Dubai World’s foreign assets, especially those in Britain, could stump a recovery in global commercial real estate markets.
"The impact on investors' confidence could prove disastrous," he said, adding that the Dubai crisis "at the very least reminds that the full impact of the financial crises might not be over".