Dubai. Dubai World may offer creditors 60% of the money they're owed backed by the sheikdom's government as part of a deal to reschedule $22 billion of debt, people familiar with the matter told Zawya Dow Jones.
The offer, which pays no coupon, will come with a sovereign guarantee when eventually presented to creditors by April, the persons said, adding that the terms of the deal are still in the early stages of discussion and may change.
Under the current proposals, banks including HSBC Holding PLC (HBC), Royal Bank of Scotland Group PLC (RBS) and Standard Chartered PLC (STAN.LN), could recover 60 cents for every U.S. dollar loaned to the troubled conglomerate after seven years, the persons, who declined to be identified because of confidentiality agreements, said.
Dubai World roiled international markets in November when it unexpectedly announced that it would seek a six-month standstill on its debts. The company met in December with 90 creditors in Dubai but little detail on restructuring has emerged until now.
An alternative proposal involves creditors receiving full payment, including 40% of their Dubai World debt in the form of assets in Nakheel--the company's property unit--with no government guarantee over the same seven-year period, the persons said.
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A spokesman for Dubai World declined to comment on the terms of the offer, which is still to be formally presented to creditors.
"Neither the government or the company have put forward any restructuring proposals to the lenders at this time," said a spokeswoman for the Dubai Department of Finance, which is financially supporting Dubai World. Ahmed Al Shaikh, a spokesman for Dubai government, said details of a proposal to creditors will be made public in April but declined to give details on the current terms being discussed.
Dubai shares tumbled Sunday, closing down 3.5% after Zawya Dow Jones revealed terms of the proposed Dubai World debt deal. Worries over the company's debt repayment plans sparked a selloff after initial gains in the market, said one trader at Shuaa Securities.
The cost of insuring Dubai's sovereign debt against default rose to its highest level since November Friday as concerns resurfaced over the emirate's large debt and a delay in presenting a deal to Dubai World creditors.
Dubai's five-year credit-default-swap spread--a key measure of credit risk--rocketed close to 50 basis points Friday to trade up at 632 basis points in late trading, according to CMA DataVision.
BANKS DIVIDED
Creditors were divided Sunday on whether the Dubai World terms under discussion offer a good deal for banks.
"This obviously represents a step forward," said Abdulkadir Hussein, chief executive of Mashreq Capital, the investment unit of Mashreqbank, which has exposure to Dubai World debt. "We've started to see some clarity on the process."
Reaction to the offer from the big international lenders with exposure to Dubai World was more subdued. A spokesman from HSBC declined to comment on the matter when called.
Fahd Iqbal, Gulf strategist at EFG Hermes, the Middle East's largest investment bank, said he expects negotiations between creditors and Dubai World will now intensify.
"The market was expecting either a large haircut and a shorter repayment or a smaller haircut with a longer repayment," said Iqbal. "We expect that Dubai World will go back and forth with bankers on the offer."
U.K. business secretary Peter Mandelson speaking Sunday at a lunch in Dubai hosted for British business also pitched in by urging the emirate to settle its debts fairly and urgently to maintain its reputation with investors.
"Dubai has to be conscious of the fact that depending on how it resolves the current problems will mean a great deal for how it secures investment in the future. Dubai has to tread carefully, openly and not for too long. It has to reach an agreement that's demonstrably fair," Mandelson said.
The emirate is struggling to deal with debts estimated to exceed $80 billion that helped it build infrastructure and rise to become a global city during the boom of the last decade. In November, Dubai World shocked international investors when it asked for a six-month standstill agreement to enable it to restructure $26 billion of debt.
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