Dubai Troubled conglomerate Dubai World expects to put its debt plan to creditors as early as this week but the final proposal is being delayed by efforts to accurately value developer Nakheel’s assets, bankers said on Sunday.
Dubai World’s plan for repaying $26 billion in debt will not include a proposal to raise capital or contain any surprises, one of the bankers said, such as the repayment of Nakheel’s Islamic bond in December after a last-minute bailout by Abu Dhabi.
Valuing Nakheel’s assets and determining the size of any financial help from the Dubai and Abu Dhabi governments would determine the size of the haircuts creditors would have to take.
Dubai is unable to contribute much while Abu Dhabi will be selective in its aid.
The debt plan comes after Dubai said in November it wanted a standstill on repayment until the end of April and give the conglomerate time to restructure. Abu Dhabi’s full $10 billion aid — which includes $5 billion from two banks linked to the wealthy emirate — is conditional on Dubai World reaching a satisfactory deal with creditors.
Nakheel, developer of man-made islands in the shape of palms and a map of the world, has a $980 million bond due in May, after the defacto standstill period ends, but is expected to be part of the broader Dubai World restructuring.
The bond’s underlying assets are the revenue stream that developed projects would eventually generate, and not the land it owns.
Dubai’s index rose 2.3 per cent, its largest gain for six weeks on Sunday, bolstered by market talk that Dubai World’s debt restructuring would be more favorable to lending banks than previously thought.
“People are saying an announcement may soon come from Dubai World and what’s being offered will not be as bad as feared, so some investors are building positions now to stay ahead of the curve,” said Mohammed Yasin, Shuaa Securities chief executive.
The cost of insuring five-year Dubai debt against default fell below 500 basis points for the first time in more than a month on Friday. Analysts said the rebound was mainly due to an improvement in market sentiment.
The five-year credit default swaps (CDS) traded at 499 basis points on Friday according to data from Markit. They had risen as high as 654 basis points on February 15 after a report that Dubai World was mulling a two-part deal, including one that may repay lenders 60 per cent of the outstanding debt over a period of seven years.
“The rise in Dubai’s CDS levels were probably overdone and the global environment has improved, particularly with regards to Greece,” said Eric Swats, head of asset management at Rasmala Investments.
Nish Popat, head of fixed income at ING Investment Management, said there was a view that sovereign CDS prices had widened too far.
“The other factor is the active involvement of the federal government and the central bank in the (Dubai debt) discussions, which has showed people there will be a potential positive outcome going forward,” he said.
Last week, a United Arab Emirate’s central bank official, speaking in Jordan, was quoted as saying that Dubai World had set up a strategy to address the debt crisis