Hello Dubai

25 March 2010 By Una Galani Follow @ugalani

The government will convert $10 bln of loans in Dubai World and Nakheel into equity and inject $9.5 bln of new money. That allows lenders full repayment of their principal. The banks still face a haircut on interest payments, but it could have been a lot worse.

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The Dubai government on March 25 announced plans to restructure debts at Dubai World and its whollyowned subsidiary Nakheel, including a recapitalisation and full repayment of the principal amounts owed to lenders.

The government said it would in total convert loans of over $10 billion it has made to the companies into equity and inject $9.5 billion in new funds. This will be funded by the $5.7 billion remaining from a loan made by Abu Dhabi in December and from internal Dubai government resources.

The emirate will recapitalise Dubai World by swapping $8.9 billion of loans into equity and injecting of $1.5 billion of fresh money to fund working capital and interest payments. Creditors will receive 100 percent of their principal loans through the issuance of two tranches of new debt with five and eight year maturities. The government did not disclose the proposed interest rate. Nor did it spell out whether its support was conditional, although a person close to the situation said it depended on the receiving sufficient support from creditors.

At Nakheel, the government said it would convert $1.2 billion of loans into equity and inject $8 billion of fresh money, much of it to fund the completion of construction projects. The government said support for Nakheel is conditional on the approval of the recapitalisation plan.

Nakheel creditors will receive 100 percent of their principal over an undeclared extended timeframe. Secured lenders will receive an interest rate based on "Eibor/Libor". Holders of Nakheel's 2010 and 2011 bonds, which amount to $1.7 billion, will also be repaid on time. Nothing was said about the interest rate for other creditors.

Both sets of restructuring proposals require 100 percent approval from banks creditors and, where they exist, 75 percent of bondholders for the restructuring process to remain out of court, according to a person close to the situation.

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