Top banks agree $23.5bn Dubai World debt deal
Posted on 20 May 2010 with no comments from readers
Banks representing around 60 per cent of the creditors of Dubai World have agreed in principle to the restructuring of $23.5 billion in debts, and are hoping for a final deal with all creditors by the middle or end of June, reported the newswire Zawya Dow Jones today.
The conglomerate will pay $4.4 billion within five years and $10 billion within eight years. And the Dubai government will cancel $8.9 billion by turning debt into equity through a cash injection.
Welcome news
Dubai stocks gained on the news and Dubai credit default swaps fell. Banks will be paid one per cent interest on the loans maturing in five years, representing an effective haircut on their expected profit on this debt. The eight-year maturities have several reduced interest rate options.
From being a PR disaster for the city last November, with the debt moratorium announced just at the start of a long holiday, Dubai has been struggling to regain some of its former image as a dynamic business centre.
The well organized and even ‘generous’ final deal has been widely praised by the bankers concerned. Indeed, it is rather a shame that more thought was not given to the presentation of the debt problem in the first place.
As the Middle East Public Relations Association discussed today at its symposium in Dubai (click here) the sudden shock of the announcement should have been avoided, and certainly there should not have been a long silence before the next announcement, allowing the international media to have a field day with generally inaccurate and overhyped speculation.
Debt mountain
Dubai still has major debt issues, though this is hardly a unique problem in the world these days. Debts to be repaid in 2011 total $24.6 billion, according to Gulf Business magazine, and there is a further $30 billion by 2014. Further debt restructuring cannot be ruled out.
However, these loans relate largely to commercial interests with good cash flows and should be differentiated from the sovereign debt for public sector liabilities that plagues most of the industrialized world.
On the other hand, there will be no return to the construction activity of the boom, and the best that can be hoped for is the completion of the many hundreds of unfinished buildings that litter the city. That is a sad end to the vision but at least a lot of it got built.
