DUBAI UPDATE: Creditors Taking Hard Line on Developer's Plea for More Time

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DUBAI UPDATE: Creditors Taking Hard Line on Developer's Plea for More Time

Posted by Alex Finkelstein 12/07/09 8:00 AM EST
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(DUBAI, U.A.E.) -- Lenders who gave Dubai World $26 billion in construction loans for its planned $100 billion city-within-a-city development are not expected to go along with the developer's request to hold off interest payments from this month to May 2010.

The Guardian of London reports negotiations are under way between creditors and the developer. More than 100 accountants, lawyers, bankers and other professionals descended on Dubai from London today
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"There won't be a standstill agreement," one creditor's representative told The Guardian. Dubai's total debt load is $59 billion.

Dubai port

As previously reported by Real Estate Channel, the Dubai emirate has stated it does not legally own Dubai World and will not pay or guarantee payment of its debts.

The negotiations could take months to complete.

By rejecting the company's proposal to put interest payments on hold, creditors automatically trigger a default, "leading to inevitable further wrangling," the newspaper reports.

Global markets have begun to recover following initial fears that the Dubai crisis would spread but the local battle over who bears the losses has only just begun.

If the standstill is rejected and a default is triggered, all parties would have to compromise to reach a restructuring agreement, according to London and Dubai sources in a position to know.

Creditors - including UK banks such as RBS and Standard Chartered, as well as hedge funds - may be in a weaker position than they would be in the UK, which has a more creditor-friendly legal environment.

Suing Dubai World in Dubai over Dubai-based assets "would be legally very expensive and would go very slowly," another source familiar with the negotiations told The Guardian.

The Dubai government, which has said it will not cover Dubai World's debts, "might find itself being the last piece of the jigsaw to make a deal work," another source said.

But creditors are not taking any government help for granted.

"Creditors hoping that if they shout loud the state would give in to them have now been given enough evidence that this won't happen," according to another financial-connected source who asked for anonymity.

Creditors are also unlikely to present a united front.

"Some might want to swap some debt for assets, holding on to them in the hope that the market will recover, while others will want cash," other sources tell The Guardian.

The crisis has attracted distressed debt investors, who usually buy debt at a huge discount with the view that a restructuring will increase the value of their debt, or that they could seize some assets.

Distressed debt players, typically aggressive and used to legal threats and action, may push the company into a better deal for creditors - although too much pressure can make a deal fall apart, sources following the negotiations tell the newspaper.

The restructuring is affecting other government related entities know as GREs, and also seen to have less support from the government than investors thought.

Standard & Poor's downgraded six Dubai GREs as it "revised its expectation for the likelihood of extraordinary support from the Dubai government to 'low."

The six are DIFC Investments (which owns the Art Dubai show), ports operator DP World, Jebel Ali Free Zone (where 6,100 companies conduct business), commodities market Dubai Multi Commodities Centre Authority, Dubai Holding Commercial Operations Group (an investment company), and property developer Emaar Properties.

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