May 20 (Bloomberg) -- Dubai World, the state-owned holding company, reached an agreement with its main creditor group to restructure $23.5 billion of liabilities as it seeks to resolve a debt crisis that roiled global markets last year.
Dubai World will pay $4.4 billion of the loans in five years and another $10 billion over eight years, the company said in an e-mailed statement today. Dubai’s government, which pledged $1.5 billion in March for the restructuring, will convert $8.9 billion of its loans to Dubai World into equity.
“Putting closure on the Dubai World issue is a good thing, but we need to get clarity on Dubai and global sovereign debt in order for a true turnaround to unfold,” said Sameh Hassan, director of research at Rasmala Investment Bank Ltd. in Dubai.
Dubai World, one of the emirate’s three main state-owned business groups, said Nov. 25 it would seek to delay repaying loans until at least May 30. The announcement sparked a plunge in developing-nation stocks and the largest increase in emerging-market bond yields over U.S. Treasuries in four weeks. The cost to protect against a default by Dubai doubled.
Dubai’s DFM General Index rose for a third time this week, closing 0.4 percent higher at 1,691.71. Credit default swaps, or the cost to protect Dubai government debt, fell seven basis points to 463 basis points at 2:25 p.m. in London, according to prices provided by CMA DataVision.
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The global credit crunch has battered Dubai’s real-estate market and left the emirate’s companies unable to raise loans to repay debt. Property prices have fallen 50 percent in the city as banks reduced mortgage lending and speculators fled.
In today’s proposal, Dubai World offered banks various combinations of interest rates and principal repayment options depending on whether they lent in dollars or dirhams. Banks will be paid 1 percent interest on the loans maturing in five years. Lenders have three options under the eight-year maturities, with at least 1 percent interest and varying additional rates from 1.5 percent to 2.5 percent at maturity. Two of these options also have shortfall guarantees.
“It’s fair to say terms of the deal are not commercially attractive, but it’s better than the other option, which is not to repay at all,” said Paul Cooper, managing director at Sarasin-Alpen & Partners Ltd. in Dubai. “The increase in clarity will serve to ease lending restrictions in the region.”
