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Dubai World, Dubai's flag bearer in global investments, said Monday it is in talks with major banks to restructure $26 billion of debt, including that of its subsidiaries Nakheel World and Limitless World. The company is seeking to delay maturities on total debts of $59 billion until at least May 30, 2010, including $3.52 billion of Islamic bonds due December 14 from its property unit Nakheel, the "palm island" developer.
Media reports on Sunday stated that the Abu Dhabi-based Central Bank of the United Arab Emirates or U.A.E., has offered local and international banks with debt exposure in Dubai additional liquidity facility. Further, the central bank stressed that it "stands behind" the country's local as well as international banks as they face losses from Dubai World's possible default. However, the bank has not offered specific support to Dubai government, which was earlier this year bailed-out with a $10 billion loan from Abu Dhabi federal government.
On Wednesday, the Dubai government announced a restructuring of Dubai World after the company shocked creditors by requesting a standstill on all financing to it and its subsidiary Nakheel. The government's decision risks undermining investor confidence in Dubai, a Middle East financial hub. If creditors grant the request, it will result in a technical default on debt.
Dubai World, one of the emirate's main state holding companies, asked for a delay on maturities debts of $59 billion. On Monday, Nakheel asked for all three of its listed Sukuk's or listed Islamic bonds to be suspended until it is in a position to fully inform the market.
The process of restructuring began with the appointment of Aidan Birkett, Deloitte's managing partner for corporate finance, as chief restructuring officer to Dubai World. The company's major asset is DP World, the ports operator, which bought Britain's P&O.
Earlier on Wednesday, the Dubai government announced it had raised a $5 billion bond for its Financial Support Fund from government-owned banks in neighboring Abu Dhabi. The government noted that this is not linked to the restructuring of Dubai World and is meant for the general purposes of the Dubai Financial Support Fund.
On November 25, markets around the world had slipped after Dubai World said it was seeking to delay loan repayments. This had raised the prospects of rising loan losses for U.A.E. and foreign banks. Dubai World had $59 billion of liabilities as of August.
Dubai ruler Sheik Mohammed bin Rashid Al Maktoum had earlier in the month revealed a shake up of the emirate's key corporate institutions. Sheikh Mohammed removed the governor of the Dubai International Financial Centre, Omar bin Sulaiman, who was a key player in transforming Dubai into the most important financial hub in the Middle East. A day earlier, three members of the board of the Investment Corporate of Dubai were removed.
The Dubai debt default issue came at a time when the global economy was starting to feel slightly confident that it has passed the worst of the global financial crisis triggered by the U.S. sub-prime mortgage fallout. The debt request risked adding to the $1.7 trillion of losses and writedowns suffered by banks in the global crisis.
A boom in construction sector has helped to create an image for Dubai as one of the comfortable places for investment. But the credit-crunch had its worst impact on the economy, forcing constructors to halt work and firing thousands of employees.
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