The plan covers only those obligations of the Dubai World subsidiaries hit hardest by the global real estate recession - Nakheel, the firm that constructed Dubai's palm-shaped artificial islands, and the property firm Limitless World. $6 billion of the debt being refinanced consists of sukuk, or Islamic bonds, which pay no interest in accordance with Islamic religious law.
As part of the announcement, Dubai World also stated that its other business units were financially stable. These units include Infinity World Holding, Istithmar World and Ports & Free Zone World, which includes DP World, Economic Zones World, P&O Ferries and Jebel Ali Free Zone, or JAFZA.
"Initial discussions have commenced with the banks of Dubai World and are proceeding on a constructive basis," Dubai World said in a written statement released yesterday.
Ever since the news broke last Wednesday that Dubai World had requested a six-month moratorium on repaying its $60 billion in outstanding debt, Dubai government officials have taken great pains to stress that while Dubai World is a state-owned company, its debts are not backed by the government. In a report in today's Kahleej Times, the largest English-language newspaper in the United Arab Emirates, Abdul Rahman Al Saleh, director general of the Dubai government's Finance Department, warned that creditors would still have to sacrifice something in the restructuring: "Creditors should bear part of (the) responsibility as they offered loans as per feasibility of (the) projects and not upon the guarantees offered by the government," he said.
News of the restructuring sent interest rates downward in the UAE: the three-month Emirates Interbank Offered Rate fell to 1.90500 percent as of the Tuesday morning fixing, down fractionally from Monday. Tuesday's rate is also below the rate set on Wednesday, before the announcement. Stocks, by contrast, continued to shed value, with the markets in Dubai and Abu Dhabi, the two most economically important of the seven emirates, off by 6.25 and 5.91 percent respectively at opening on Tuesday.
Markets outside the Middle East appear to have digested the news of Dubai World's debt problems and come to understand that there is no danger of sovereign default involved. The U.S. stock markets posted modest gains yesterday and continue to rise modestly as of this morning; the cost of credit default swaps - insurance against possible default - for Dubai and Abu Dhabi debts also fell sharply Monday after spiking on Friday.
Written by Sandy Smith
Posted December 1st, 2009 by Sandy Smith
