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Fri 12 Mar 2010 10:22 AM

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Dubai World seeks to separate ‘good’ firms from ‘bad’

'There’s a lot of good business like the port business, free zone, dry dock.'

Dubai World seeks to separate ‘good’ firms from ‘bad’
DUBAI DEBTS: Dubai World will ask banks for permission to delay loan repayments when it presents a plan this month. (ITP Images)

Dubai World, the state-owned holding company restructuring $26bn in debt, is seeking to separate “good” businesses from underperforming assets as part of its restructuring plan, the head of the city’s airline said.

“What we try to do is trying to separate the bad business from the good business,” Sheikh Ahmed Bin Saeed Al Maktoum, chairman of Dubai Supreme Fiscal Committee and the Chief Executive of Emirates Airline and Group, said in New Delhi today. “There’s a lot of good business like the port business, free zone, dry dock.”

Dubai World and its Nakheel and Limitless property units used loans to finance real estate projects such as the palm tree-shaped islands off the emirate’s coast, which they struggled to refinance amid the credit crisis. Dubai World said in November it would seek to delay repaying all loans until May, sparking a slump in developing-nation stocks and doubling the cost to protect against a default by Dubai.

Nakheel’s 2.75 percent $750 million sukuk due in January gained 9 cents in the week to 61.625 cents on the dollar, according to Citigroup prices. The emirate’s benchmark Dubai Financial Market General Index, down 19.6 percent since the November announcement, rose 1.5 percent to 1,683.89 yesterday. Credit default swaps linked to Dubai declined nine basis points to 471.3 basis points, prices provided by CMA DataVision show.

The government is “always behind” Dubai World, said Sheikh Ahmed.

Dubai World will ask banks for permission to delay loan repayments when it presents a plan this month, said three bankers familiar with the negotiations on March 8. The company will present a restructuring proposal to its creditors after its advisers complete valuing the company’s assets, a person close to the Dubai government said Feb. 17.

Dubai, the second-biggest of seven emirates that make up the UAE and its state-owned companies accumulated debt to transform the sheikdom into a tourism, trade and financial services hub. The International Monetary Fund estimates Dubai borrowed $109.3 billion during a real-estate boom that ended in 2008.

The seizure of debt markets after the onset of the global credit crisis led to a 50 percent decline in property prices in the city and hampered the ability of Dubai-based companies to raise loans to refinance debt.

Dubai World said on Dec. 1 it wants to alter the terms of about $26 billion of debt, including obligations from Nakheel. Dubai World, one of the emirate’s three main state-owned business groups, paid $4.1 billion to settle an Islamic bond from Nakheel later that month after Dubai received a $5 billion loan from Abu Dhabi, the U.A.E. emirate that holds about 8 percent of the world’s proven oil reserves.

The company may propose to creditors excluding Nakheel holders a 20 percent cut in face value, a 10-year extension on maturities and a government repayment guarantee, JPMorgan Chase said in a note to investors dated March 8.

Nakheel has two outstanding Islamic bonds, a 3.6 billion- dirham ($980 million) floating-rate note due May 13 and the $750 million sukuk maturing in January 2011.

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John 10 years ago

Does this mean the $26bn is guaranteed?

Katia 10 years ago

With what, John, with what? You need worthwhile assets to be able to effect a guarantee