State-owned conglomerate Dubai World is offering creditors a series of incentives to lengthen a $25 billion debt restructuring deal, including shares in global ports firm DP World as collateral, sources aware of the matter said.
The company is also offering to return cash throughout the loan's lifespan, more assets as collateral, a higher interest rate and an early repayment of a first tranche of debt due next year. In addition, the Dubai government will make extra funds available to Dubai World.
In return, the firm wants creditors to grant it more time to meet a second, larger repayment currently due in 2018. In total, around $15 billion of the original renegotiated amount is outstanding after small repayments and the shift of property developer Nakheel to direct government ownership.
Dubai World declined to comment when contacted by Reuters. The sources spoke on condition of anonymity as the information is not public.
Dubai's economy has rebounded strongly from the local property crash which triggered a wave of debt restructurings at state-owned entities at the turn of the decade - most notably Dubai World's request for a debt standstill in 2009.
However, the $10.3 billion second repayment under a debt plan agreed in 2011 was always regarded as a challenge for Dubai World, given its size and the initial slow progress on asset sales meant to fund the repayments.
Buoyed by economic conditions and the start of small repayments from asset sales, it appointed Blackstone Group as advisor in April and began talks with major creditors to amend the terms.
Agreement has now been secured with the creditor committee of banks which includes HSBC and Emirates NBD over the terms of a new deal and talks are now ongoing with some other lenders, three sources with knowledge of the matter said.
Dubai World is hoping to get assent from creditors holding close to 67 percent of the debt - the level of support needed to agree changes to the original plan - before asking the full creditor group to vote on the deal, one banking source said, thereby avoiding the risk any creditors could scupper the deal.T
Under the revised plan, Dubai World will repay the $4.4 billion tranche due in May 2015 early - likely in December or January depending on the progress of negotiations - in exchange for the $10.3 billion 2018 payment being extended until 2022.
The new 2022 payment will also be augmented in a number of ways aimed at persuading creditors to grant more time.
An amortising structure - under which cash is returned to lenders during the lifespan of the loan instead of at the end - will mean the loan is effectively paid off inside three years of the four-year extended period, two of the sources said.
It would also mean creditors getting $3-4 billion of cash before the current 2018 payment date, the banking source said, meaning only a portion of the debt falls under the extension.
Most contentious for Dubai will be the inclusion of DP World shares as collateral in the proposal. One of the world's largest ports operators, it is one of Dubai's biggest success stories and is thought to be Dubai World's most valuable single asset - its market capitalisation is around $16.4 billion currently.
"It's the asset closest to their hearts - the crown jewel," said the banking source.
Real estate assets will also be put up as collateral, the two sources said without elaborating on details.
The interest rate on the loan will also be increased, as will a $1 billion facility from the Dubai Financial Support Fund which Dubai World can draw on during the restructuring. This will be worth $1.45 billion under the proposed deal.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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