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Thu 25 Mar 2010 11:02 AM

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Analysts react to Dubai World restructuring plan

Arabian Business looks at how analysts around the world have reacted to Dubai's latest restructring plan.

Analysts react to Dubai World restructuring plan
(Getty Images)

Dubai's government said on Thursday it would support the restructuring of debt-laden state-owned firms Dubai World and Nakheel by providing $9.5 billion in new funding.

Dubai's request for debt payment delays in November shook global markets and raised wider concerns among international investors about transparency and disclosure standards in the region.

Here's how analysts around the world have reacted to Dubai's latest restructring plan:

ROBERT MCKINNON, CHIEF INVESTMENT OFFICER, ASAS CAPITAL:

"This is probably the best outcome that could have come out, but some of the details are vague -- it says Nakheel will renegotiate at commercial rates, but without a guarantee from Dubai World or the government, these commercial rates would be pretty high.

"Paying trade creditors is key, because that will hopefully have a ripple effect on the rest of the economy -- previously trade creditors hadn't been paid and so they didn't pay their subcontractors and so on. This move should help stabilise Dubai's economy."

MOHAMMED YASIN, MANAGING DIRECTOR, SHUAA SECURITIES:

"It is a positive outcome, has exceeded the market expectations as the structure has addressed all concerns and strengthened the position of Dubai World and Nakheel.

"By recapitalising the companies through equity, it shows strong government support."

HAISSAM ARABI, CHIEF EXECUTIVE AND FUND MANAGER, GULFMENA ALTERNATIVE INVESTMENTS:

"We could see profit-taking in the market going forward, but this statement removes a major nightmare from the equation so people can therefore price in more normality and actually look at company numbers in terms of the macroeconomic story.

"Valuations are very attractive - Q1 results are coming up and so people will want to take positions. The bull trend should continue through April.

"The government says contractors will get paid and that's why the likes of Arabtec is going up, because it is has a lot of receivables."

TIM CONDON, HEAD OF ASIAN RESEARCH, ING BANK (SINGAPORE):

"This drives away the uncertainty and uncertainty is not good for the financial markets. It reduces volatility and promotes risk appetite but as far as being a long-term driver for the markets it is a bit difficult to say."

"The financial markets have a lot of experience with restructuring and as far as the Dubai news is concerned it probably had its moment in the sun when the first time the news came about."

MEGAT HIZAINI HASSAN, HEAD OF ISLAMIC BANKING AND FINANCE TRANSACTIONS PRACTICE, ZAID IBRAHIM & CO, KUALA LUMPUR:

"If there is some sort of settlement to ensure the sukuk holders of the return that would help a lot. It should provide some measure of certainty. Like it or not if there's default, in some way it would reflect on Islamic finance because of the size."

RAFE HANEEF, MANAGING DIRECTOR, FAJR CAPITAL, KUALA LUMPUR:

"There will still be concern about Dubai debt. The way Dubai handled in December last year was not acceptable to the creditors, so regardless of what this proposal says, it will take time for the creditors to have comfort with Dubai. It is the first step of many steps to come. This is probably a positive step but as far as the creditors are concerned, they would like to see more concrete steps before they can come back to the same comfort level they had with Dubai before."

DAVID SILVER, PARTNER AT FULBRIGHT & JAWORSKI, DUBAI:

"The Dubai government is saying that we believe in the long term viability of Dubai generally. It's taking equity in the company, effectively committing itself the success of it."

MOHIEDDINE KRONFOL, MANAGING DIRECTOR, ALGEBRA CAPITAL:

"I think the proposal is largely positive. However, we still have to wait and see if they reach an agreement on this with creditors. Also, we need to know how Dubai government is going to fund this $9.5 billion they are injecting"

AYMAN EL SAHEB, DIRECTOR OF OPERATIONS, DARAHEM FINANCIAL BROKERAGE:

"It boosts sentiment because this is a strong commitment. It's now on paper, even if it's only partial guarantee, the commitment is better than nothing, it will be very well received by the investors. It's a UAE commitment, as some of the support already came from Abu Dhabi. It's support on a federal level. Now they can actually move ahead and start restructuring properly, the cloud that was over the whole process has dissipated. Information is key in the capital markets industry, now that we have received some information, we definitely expect good impact, good response from investors, whether domestic or institutional." (Reuters)

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Omar Momany, Senior Lawyer at Freshfields Bruckhaus Deringer LLP Dubai 10 years ago

The restructuring proposal seems to exceed the market's expectations. Many creditors were expecting reductions to their loans in additions to a rollover and maturity extensions. Contractors and customers were equally prepared for less than full payment. The fact that DW plan proposes a full repayment across the board may well be taken positively. What is notable in the proposal is the Government's commitment and support (though without offer a guarantee), which shows a will to re-invest in DW and its assets.