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Dubai World to offer shortfall guarantee in debt proposal

 Dubai World, the state-owned holding company seeking to restructure $14.2 billion of debt, offered creditors a so-called shortfall guarantee as part of a repayment plan, a person close to the Dubai government said.

If the sale of Dubai World’s assets does not generate sufficient cash to repay loans, the government will make up the shortfall up to a certain level, said the person, who declined to be identified because the discussions are private. The guarantee clause was not outlined in Dubai World’s press statement on March 25 when the restructuring plan was announced.

Dubai World, one of the emirate’s three main state-owned holding companies, and its property unit Nakheel PJSC are seeking to renegotiate terms on $24.8 billion of debt after the global credit crisis battered Dubai’s property market and hurt the ability of the emirate’s companies to raise loans. The Dubai government and its state-owned companies racked up $109.3 billion of debt, according to International Monetary Fund estimates, as the emirate sought to transform into a tourism, trade and financial services hub.

Dubai World asked creditors March 25 to roll over outstanding debt into two new loans of five year and eight year maturities. Lenders will be paid their principal in full, although the interest rate on the loans is still being negotiated with the banks, Dubai World Chief Restructuring Officer Aidan Birkett said that day.
Dubai World’s creditors will be paid interest below the market rate in cash, although that will be supplemented by a so- called payment-in-kind element, the person said. The person did not specify how much the payment-in kind was.

Nakheel’s creditors were asked to extend loan maturities at interest rates linked to the Emirates interbank offered rate and the London interbank offered rate. Two of Nakheel’s Islamic bonds, which together raised $1.73 billion, will be paid in full when they mature this year and in 2011.

The treatment of Dubai World and Nakheel’s creditors reflects the different levels of security and the legal positions of each creditor class, the person said. Dubai World’s lenders are unsecured, while lenders to Nakheel have recourse to the company’s assets, the person said


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