After peering into the abyss of default in November, Dubai World has come back from the brink. Dubai’s government proposes to inject $9.5bn into the state-owned conglomerate, including $8bn for property development arm Nakheel. The emirate will convert to equity almost $9bn of its claims on Dubai World and over $1bn owed by Nakheel, so taking a back seat to bank creditors. If the proposal is accepted, Nakheel’s outstanding 2010 and 2011 sukuks, or Islamic bonds, mostly held by domestic banks, will be repaid. Bond prices rallied. Yet the plan, while a step in the right direction, is far from a fait accompli.
True, global and regional bank creditors, which had feared a haircut on their $14.2bn of debt, will not take an upfront hit on their principal. However, they will have to accept extended maturities. But the interest rate proposed could still derail the plan. Although not publicly disclosed, it is said to be adrift of current market rates. Creditor banks would be forced to make provisions if they accepted it.
Dubai will use the remaining $5.7bn of wealthier neighbour Abu Dhabi’s $20bn bail-out package to fund part of its commitment. That leaves $3.8bn to find. Here, Dubai World’s investment portfolio could come in handy – especially its stake in banking group Standard Chartered, whose shares are at all-time highs.
In attempting to resolve Dubai World’s debt woes in an equitable way, the emirate clearly has an eye on its longer-term refinancing needs. Yet the damage to its reputation has been done: banks will not open their cheque books again in a hurry. Although its plan is more than banks could have expected four months ago, if Dubai is serious about regaining its credibility, it should not push its luck on borrowing rates.
英国《金融时报》 Lex专栏 2010-03-26