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Thu 22 Jul 2010 05:30 PM

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Dubai World document reveals price of failure

Initial $4.4bn, 5-yr debt tranche to be financed by Istithmar World, Infinity inv't.

Dubai World document reveals price of failure
(Google Images)

Dubai World warned that lenders, aside from the government's own support fund, would face a "significantly" worse deal if its debt plan fails and it is forced to seek liquidation, according to the debt restructuring plan outlined to bankers on Thursday.

The document seen by Reuters also said the repayment of an initial $4.4bn, five-year debt tranche would be financed by its Istithmar World portfolio and its Infinity investment - two segments that were ringfenced from the conglomerate's debt proposal agreed by a core group of bankers in May.

A source close to the company said other Dubai World assets could also be used to finance repayment.

Infinity is in a joint venture with MGM Resorts International. Dubai World bought a 9.5 percent stake in MGM in 2007.

Dubai World's other assets include a 20-percent stake in Cirque du Soleil and Scotland's Turnberry Golf course.

The document made clear that creditors would suffer in a liquidation scenario and that Dubai's own coffers would be protected.

"Recoveries for all creditors except DFSF in a liquidation scenario would be significantly below those expected under the proposal," the debt plan said.

The DFSF, or Dubai Financial Support Fund, has lent billions to Dubai World as the flagship company struggles to cope with a massive debt burden.

Dubai World is restructuring $23.5 billion in debt. The government has agreed to take a hit on its claims against the firm, leaving $14.4 billion in bank debt outstanding.

The document said Dubai World can resort to a special tribunal if it gets two-thirds support for its plan but some banks rebel against it.

The state-owned firm, whose assets range from ports to real estate and private equity investments, said developing an alternative plan under the tribunal would be a drawn out process.

"Any subsequent deal offered is likely to exclude government support, resulting in extended tenor of 10 years plus," the document said.

Dubai World met with all its bank lenders on Thursday to present its plan on repaying its debt. The company's plans involves repayment over five to eight years, with interest of between 1 percent to 3.5 percent.

The document said repayment of later-dated maturities would come from "strategic" assets.

Under the plan, according to the document, lenders will be offered an observer role on the management committee.

Dubai World declined to comment. (Reuters)

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