- Title: VARIOUS: Dubai World to meet creditor panel on debt crisis
- Date: 4th December 2009
- Summary: DUBAI, UNITED ARAB EMIRATES (DECEMBER 2, 2009) (REUTERS) VARIOUS OF DUBAI TOWER PAN OF DUBAI TOWER AND DUBAI MALL VARIOUS OF ATLANTIS HOTEL AT THE PALM
- Embargoed: 19th December 2009 12:00
- Keywords:
- Topics: Finance
- Reuters ID: LVAEZGGCJ73CH97MAM1TMKD7QNEE
- Story Text: Government-owned Dubai World will meet its main creditors next week to discuss a request to delay payment on $26 billion in debt that has shaken global markets and confidence in the Gulf Arab business hub.
Dubai's debt problems have raised fears of financial fallout in other markets after government-owned Dubai World requested to delay payment on $26 billion in debt last week.
However, market jitters have waned this week with Dubai markets closed and ahead of next week's meeting by Dubai officials with creditors. That will be Dubai World's first formal talks with key lenders since the conglomerate that spearheaded the emirate's rapid growth disclosed its debt woes on November 25.
An Abu Dhabi bank executive, who asked not to be named, said London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, along with local lenders Emirates NBD and Abu Dhabi Commercial Bank were on the creditors panel.
The banks did not immediately confirm their participation on the committee but an Asian-based banking analyst said the six banks were likely to be among those with greatest exposure to Dubai World, which ran up its debts during a property boom that turned to bust with the global financial crisis last year.
Dubai World has asked creditors for a six-month standstill on the debt of its property subsidiaries Limitless and Nakheel, developer of three palm-shaped islands that once lured wealthy expatriates and even celebrities.
The most urgent question is the fate of Nakheel's $3.52 billion Islamic bond, which matures on Dec. 14. British law firm Ashurst said it was named legal adviser to Nakheel bondholders who account for 25 percent of the bond.
Dubai said the government would not guarantee the debts of Dubai World, whose overall liabilities total almost $60 billion, including those of units not part of the restructuring.
The International Monetary Fund said on Tuesday (December 1) that banks from Britain are the most exposed to the conglomerate which was at the forefront of Dubai's expansion plans and boasts the motto "The Sun Never Sets on Dubai World".
Dubai transformed itself from a sleepy desert backwater into the trade and tourism hub of the world's biggest oil-exporting region with sprawling malls, skycrapers and luxury villas that attracted celebrities and the super-rich.
The Dubai debacle, which initially spooked global stock, debt and currency markets, has exposed the frailties of "quasi-sovereign" lending.
Foreign banks had lent to Dubai government-linked firms on the implicit understanding that they were backed by the UAE -- the world's third largest oil exporter flush with cash from a six-year boom in oil prices. But the government distanced itself from Dubai World, causing concern among investors.
Moody's said on Tuesday that possible multiple defaults related to Dubai World's debt restructuring could lead to downgrades in UAE bank ratings, but international banks exposed to the conglomerate are unlikely to be affected.
The ratings agency estimated the Dubai government and its related entities have debt of $100 billion -- higher than the market estimate of around $80 billion.
Dubai issued a five-paragraph statement last week just before a four-day holiday, containing no details and leaving bankers and investors scrambling for information. It said only on Monday it would negotiate $26 billion of debt with lenders.
The lack of clarity and the prospect of bondholders rejecting the delay in repayments could lead to a fire sale of prize assets and even push the emirate to divest speculative investments made during the six-year boom that are unlikely to generate long-term revenue. However no announcement has been made of Dubai assets up for sale.
Among the key assets and high-profile holdings is EMAAR Properties, the Arab world's largest property developer by market value. It is in the midst of a merger with three other state-linked developers after a failed acquisition in the United States and Dubai's real estate market crash left it vulnerable. Still, its portfolio includes the world's tallest tower Burj Dubai, and one of the world's biggest malls already open.
There is also Atlantis Dubai, the resort, which opened in November to a $50 million firework display, a joint venture with South African tycoon Sol Kerzner.
Among other companies is Emirates, the airline, whose chairman also chairs Dubai's supreme fiscal committee. It has $55 billion of orders of planes from Boeing and Airbus. It has been at the forefront of turning Dubai into an international hub and had been nearing a potential share sale before the financial crisis hit. Emirates has repeatedly fought back speculation it would merge with Abu Dhabi's carrier Etihad Airways. The airline has said its orders will not be affected by the crisis.
DP World is one of the world's largest port operators and is arguably the crown jewel in the Dubai trophy cabinet. Its 2007 IPO, the region's largest to date, raised almost $5 billion, but its share price has fallen by more than two thirds of its original value. The firm reassured investors on Nov. 26 it was not part of Dubai World's restructuring. Dubai World was in talks with a private equity firm to sell a stake in the port operator with important international assets.
"Dubai World has some valuable assets in China mainly due to the association with P&O and it has several important port assets and notably in Hong Kong, No.3 container terminal. But while these are valuable assets, these are not really assets that will affect the market per se," said Francis Lun, Fulbright Securities General Manager based in Hong Kong.
"The only problem for the container terminal in Kwai Chung is that it has been on a path of steady decline since the development of container ports in China, so it may not command a very high price," Francis Lun said, referrring to a possible sale of the port assets. "Container throughput in recent years has come down, especially with the financial crisis world trade has shrunk by 20-30 percent and container throughput for this year is at least 20 percent down from last year."
Among other high-profile holdings is Sony Corp. Dubai International Capital, through its Global Strategic Equities Fund (GSEF), bought a stake in the Japanese electronics and entertainment firm in 2007 in what it described at the time as a substantial investment. Anyone who buys more than 5 percent of a listed company on Tokyo is required to report the stake to regulators within five business days.
In 2007, Dubai World also invested about $5 billion in casino operator MGM Mirage by buying shares and half of an $8.5 billion Las Vegas project - CityCenter, an urban metropolis on the Las Vegas strip. Dubai World last year sued MGM Mirage as credit dried up and CityCenter flirted with bankruptcy. - Copyright Holder: REUTERS
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