Una Galani, Breakingviews.com Published: Thursday, November 26, 2009
Read more: http://www.financialpost.com/opinion/breaking-views/story.html?id=2272521#ixzz0Y2dpoPaA
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Dubai world: Dubai World's creditors have a weak hand. The restructuring of the US$60-billion of debt at the emirate's core holding company, which includes investment vehicle Istithmar and property developer Nakheel, will be the largest and toughest ever in the Gulf region. The few precedents are not encouraging for those who funded Dubai's grandiose vision.
Shocked creditors had expected timely repayment. Now, they are scrambling to form steering committees to liaise with Dubai World's new restructuring chief, Deloitte's Aidan Birkett. In practice, lenders can't really turn down the request for a six-month standstill, until May 2010, and have little option but to wait for Dubai World to formulate a plan to address its sprawling debts.
Even if loans are secured and the underlying paperwork is comprehensive, the region's laws are unfriendly to creditors. It is almost impossible to seize collateral. The courts have consistently rejected claims by lenders to Kuwait's Global Investment and Investment Dar, financial firms which defaulted at the start of the year with combined liabilities of US$5.5-billion. In the Kingdom of Saudi Arabia, authorities even prioritised the claims of local lenders over the foreign banks which are estimated to be owed US$16-billion by two leading merchant families, the Saads and Algosaibis.
What's more, restructurings in the region to date have been relatively simple. Kuwait's Global Investment and Investment Dar simply plan to repay creditors by pushing out maturities by up to five years. Dubai World has some good assets, but the sharp drop in property prices probably means a deeper restructuring will be required. In the West, debt-to-equity swaps are a common fix. But there is no precedent in the Gulf. Dubai World's mix of Islamic instruments and government-ownership could add further complications.
The list of Dubai World's creditors has not been published, but some of the biggest banks in the West and Gulf are likely to feature. Resource-poor Dubai depends too much on international markets to treat foreign creditors quite as badly as the Saudis have done, but that's only a small comfort.
una.galani@breakingviews.com
Read more: http://www.financialpost.com/opinion/breaking-views/story.html?id=2272521#ixzz0Y2dHq4Mp
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