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Mon 8 Mar 2010 09:02 PM

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Dubai World hope lifts markets, divides creditors

Some creditors are willing to take a 'haircut' on payments, others want full repayment.

Hopes of progress this week on Dubai World's $26 billion debt restructuring lifted stocks and eased fears of default, but potential divisions emerged among creditors to the state owned conglomerate.Dubai World could put its plan to major creditors, which include HSBC and Standard Chartered, in London this week but was being delayed by efforts to value the assets of its Nakheel unit, builder of Dubai's palm shaped islands, bankers said.

While some of the 97 creditors want to see the option of full repayment on the table, others are willing to take a "haircut" in order to get some money back fast, bankers said.

One Gulf based banker, who asked not to be named, said: "We are not willing to take a big haircut ... in that case we would go back to the committee to see what our options are."

He added: "Full repayment should be an option, timing is less of an issue."

Dubai World shocked global markets in November, when it requested a standstill on its debt repayments.

In December, neighbouring Abu Dhabi, the wealthiest member of the UAE federation, issued Dubai with a financial stimulus package and again stepped in on Monday to rescue Dubai listed cooling firm Tabreed.

Dubai says the Dubai World plan will be fair, but Dow Jones has reported that creditors may get just 60 cents on the dollar.

A banker at an Asian lender, which is amongst the creditors, said: "There are those banks who want to have the money immediately and take a haircut and those who can wait for a longer time."

He added: "If one of the lenders doesn't accept both options, they can go for a legal case. It's in the interest of the bankers and the company there is some agreement."

Despite the potential divisions, hopes of progress in the talks cut the cost of insuring Dubai's debt against default and boosted Nakheel's 2011 bond on Monday.

Dubai's five myear credit default swaps (CDS) fell about 20 basis points to 488.7, their lowest level since Jan 28.

They had risen as high as 654 basis points on Feb. 15 after a report that Dubai World was mulling a two part deal, including one that repaid lenders 60 percent over a period of seven years.

Dubai's stock index ended up 1.7 percent on Monday. Abu Dhabi's index hit a two month closing high.

Dubai World declined to comment on the talks with banks.

A person familiar with the matter said: "No formal proposal has been made."

He added: "Dubai World is in ongoing contact with its banks as part of ongoing confidential discussions around the restructuring process."

Dubai World has ringfenced key assets from its restructuring plan including ports operator DP World, which has said it may seek a secondary listing on the London Stock Exchange.

A report on Sunday said DP World may offer new shares to shareholders and Dubai World could sell part of its 77 percent stake as it bids to become part of the FTSE 100 share index.

The move would help boost DP World's liquidity and raise the stock's free float shares to 35 percent.

Bankers said the restructuring was unlikely to include proposals for a capital hike or contain any surprises.

A source familiar with the matter said last month that the Nakheel bond maturing in May was unlikely to be repaid.

But that could frustrate creditors expecting to get their money back after Abu Dhabi's last minute intervention in December allowed Dubai to repay Nakheel's maturing bond.

A European fund manager, who used to hold Dubai World debt, said: "It's more of a local issue than a global issue now because the news is out, people know they want to restructure."

It added: "Given that they paid out on Nakheel in December, creditors will be looking for full payment on the other bonds."

Dubai's debt crisis is still causing ripples around the region. Moody's downgraded seven Abu Dhabi government related entities late last week, due to the absence of an explicit, formal guarantee of government backing.

Abu Dhabi, home to most of the UAE's oil, dismissed the downgrade, saying it had the money to meet its commitments to the firms, especially three which are wholly state owned.

Its investment vehicle Mubadala issued a $354 million bond on Monday to Tabreed, which provides air conditioning to buildings and developments.

Mubadala, among the companies downgraded by Moody's last week, owns 16.7 percent of Tabreed.

Standard & Poor's said on Monday that Abu Dhabi could be expected to step again if the UAE central bank needed to support the domestic banking system.

Speaking to reporters in a conferance called, Farouk Soussa, head of S&P's Middle East sovereign ratings, said: "We would consider it a high likelihood that Abu Dhabi will support the UAE central bank in its efforts to stabilize, if the need arose, the UAE banking system through capital injections."

He added: "We believe Abu Dhabi has the capacity to do that." (Reuters)

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