Dubai World aims to reorganize Debt

During the following week Dubai has scheduled restructure its loan repayments. Dubai World, the emirate’s largest state-owned company, made the loan. Dubai intends to extend the repayment period by taking advantage of the fact its economy is constantly growing.

In 2011, state-owned Dubai World agreed on a $25 billion restructuring agreement. The company now aims to the repayment of $10.5 billion, which was initially due for 2018 due to the fact Dubai is planning to invest in its aviation sector in order to accommodate and prepare for the World Expo 2020. The mega-company will present its proposals to creditors during the first ten days of December 2014 in London and Dubai.

Dubai World intends to repay a $4.5 billion installment, initially due in 2015 while negotiating the possibility to extend the 2018 installment to 2022. In order to assure creditors apprehensions, Dubai World will propose better or higher interest rates and extra fees.

The main lenders, including HSBC, Standard Chartered, Abu Dhabi Commercial Bank and NBD have all agreed to the new proposal and the main terms outlined in the agreement.  Nonetheless, Dubai World is still required to convince many more creditors to agree on restructuring the 2018 deadline agreement. The majority of banks (creditors) asked for higher fees and interest rates in order to agree on the extension.

Bankers believe the majority of lenders will respond positively to the new proposal due to Dubai’s economic prosperity and prospects for the future. They also argue that the finalized agreement is both fair and reasonable. On the other hand, some may not agree, influenced by Dubai’s debt crisis a few years ago. They may view Dubai is attempting to avoid repaying the amount due in 2018.

However, DP World purchased Jebel Ali Free Zone Logistics Park, which as all know, is Dubai’s port operator. The amount Dubai World received from the sale is more than enough the emirate needs to repay the 2015 installment in advance.

Dubai World needs the consent of creditors obtaining three-quarters of the loan value in order for its proposal to comply with UK legislation. However, Dubai is able to pressure for their proposal to be approved by securing the approval of two-thirds of the creditors at the Dubai World Tribunal. Dubai World Tribunal is a legal committee that was founded after the debt crisis in 2006.

Dubai’s services sector has grown excessively due to increased trade, tourism and transportation. Dubai is still in debt, owing approximately $120 billion, but experts are optimistic the emirate will repay the debt without any trouble.

Due to the fact Dubai plans to invest excessively in its domestic infrastructure and mega-projects, it will have to ask for more funds from banks and other capital markets. Dubai intends to invest in its aviation sector, by enlarging its second airport AI Maktoum and estimates the project will amount to approximately $32 billion.