By Ed Attwood
State-owned conglomerate to pay back $2.92bn this year, to push back 2018 maturity to 2022
Dubai World has announced that it has applied for a ‘voluntary arrangement notification’ (VAN) under the terms of Decree 57, the insolvency legislation set up in 2009 to provide protection for the state-owned conglomerate and its entities, as part of a deal to restructure $14.6 billion worth of debt.
Four of its subsidiaries have also applied for a VAN, including Istithmar World Holdings LLC, Istithmar World PJSC, Port & Free Zone World FZE and Dubai World Group Finance Limited.
The move allows the company to propose a voluntary arrangement to its creditors and equity holders for approval, which can then be sanctioned by the Dubai World Tribunal. The arrangement must be be approved by a two-thirds majority of impaired creditors.
In a statement released by the company, Dubai World said that it had “reached formal agreement with a substantial majority by value of its creditor banks on its proposal to amend and extend the terms of its outstanding debt totalling $14.6 billion”.
The deal will involve full early repayment of 2015 maturities totalling $2.92 billion and the extension 2018 maturities to 2022.
“As part of its debt optimisation strategy, Dubai World entered into discussions with a wide range of representative creditors with significant holdings of its debt for several months around a voluntary transaction to improve terms and conditions of the existing credit agreement for both the Company and its lenders,” the statement added.
Dubai World said it was “delighted to have substantial majority support from its lenders on the proposals, as the agreement represents a "win-win" for the company and lenders, providing an improvement on the existing credit agreements for both sides.
“The commencement of the Decree 57 process which is tried and tested, and has very similar characteristics to parallel regimes in other international jurisdictions, is an entirely logical and expected step to complete the agreed debt optimization exercise.”
Dubai World had been in long-running talks with over 100 banks and financial institutions to reschedule its debt payments following a $25 billion restructuring agreement signed in 2011.
The entity had proposed to pay early and in full a $4.4 billion chunk of debt that matures this year, while at the same time pushing back the repayment of another $10.5 billion worth of debt to 2018.
In October, Mohammed Al Shaibani, the chief executive of Investment Corporation of Dubai (ICD), the emirate’s sovereign wealth fund, told Reuters that Dubai World was looking to extend its maturity on the 2018 payments “about three to four years”.
In December, Dubai World chairman Sheikh Ahmed bin Saeed Al Maktoum said he was “very optimistic” that the proposal would be accepted, with around two thirds of creditors believed to have given approval.
The conglomerate had been shuffling some its assets ahead of the planned $4.4 billion repayment this year. In November, it sold Economic Zones World, which owns the Jebel Ali Free Zone, to DP World for $2.6billion.
Other assets divested include warehouse developer Gazeley, which was sold to Brookfield Asset Management, The Fontainebleau hotel in Miami, and the Atlantis Resort on the Palm Jumeirah, which was sold to ICD. Last month, Istithmar World sold its retail unit, Retailcorp, to Marka for $60 million.
Since the 2008 crises Dubai world are rooming in visual circuits , VAN is synonymous for Bankruptcy and protection from debtor, however the company still lack the courage to admit failure and the need for major cut and restructuring .. the current resources bleeding will only postponed the crises and maintain the cover-up of all the losses and wrong doing but for limited time .
Dubai need Clear bankruptcy laws , not only for DW but for all the companies , and in spite the dramatic and painful exercise it will only make her bigger and stronger ( surgery are far better solution than medicines and useless pain killer )
i wish i could apply for a â€˜voluntary arrangement notificationâ€™ (VAN) with my banks.
Funny how all the "throw debtors in jail" crowd remains quiet now.
Limitless defaults and now a "proactive default" from Dubai World. Combined with the plummeting oil price you don't have to be Sherlock Holmes to figure that UAE sovereign debt is once again in dire straits.
We are facing a structural shift in the energy power balance impacted by so many different factors, however once thing is for sure: $75 per barrel is history (for the forseeable future). Some nice benefits to this: Financial relief for average Joe, IS funding on the pumps, less profits for Dick Cheney and the taming of the Russian Bear.
Does this now imply that in share market terms Dubai is still significantly over valued? Also if the oil price gets any lower, Abu Dhabi will be wanting it's $20 billion back sooner rather than later.
On-going terror acts against Western targets in Europe and Australia will only make tourists more jittery about UAE as a destination (with IS camped out not that far away), plus many Russians can no longer afford the high life, also Chechen and Dagestan fighters are flocking to IS along with EU passport holders.
The grand plans that keep getting announced must surely be put on hold, construction firms are getting paid later and later by developers, as their margins are equally squeezed. This is no longer a working economic model and we are getting perilously close to the 2009/10 scenario.
International Banks are already cutting back their exposure and operations in the UAE based on the original crisis, and this latest debt move is only likely to make that position more acute.