DUBAI, (Reuters) – Dubai dropped plans to seek preferred creditor status in the restructuring of state-owned Dubai World, a reversal which removed a key stumbling block in talks with lenders.
It said the restructuring of some $22 billion in debt would be “equal” for all creditors but a source said Dubai World will likely not repay a $980 million Islamic bond linked to its property unit Nakheel and due in May.
Dubai shook markets in November with plans to delay repaying $26 billion of debt linked to Dubai World’s main property units Nakheel and Limitless World.
It averted default on a $4.1 billion Islamic bond issued by Nakheel after a last minute bailout from Abu Dhabi.
The debt restructuring plan is scheduled to be unveiled in March. Until then the Gulf Arab emirates will continue to fund working capital and interest payments on an unsecured basis.
“That is a concession from the government,” a source familiar with the matter said.
“We haven’t let go of our want but we will continue to fund on an unsecured basis,” the source said, adding: “We’re not going to do this forever.”
“We are going to put forward a plan that shares the recoveries with the lenders,” the source said, referring to the government’s intention to make the restructuring plan “equitable.”
The Dubai government, acting through the Dubai Financial Support Fund (DFSF), has given the conglomerate about $6.2 billion over the past 12 months and plans to provide more. Collateral for further aid was cited as an impediment to a deal to address Dubai World’s unmanageable debt burden. Taking Dubai World security against future help would make the DFSF a preferred creditor in the event of insolvency.
Dubai is in talks with an informal creditor committee made up Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, as well as local lenders Emirates NBD and Abu Dhabi Commercial Bank. Japan’s Bank of Tokyo-Mitsubishi, a unit of Mitsubishi UFJ Financial Group (8306.T), joined the group in January.
In Abu Dhabi, the head of the Arab Monetary Fund (AMF) said he expected Dubai to reach a speedy resolution and did not expect it would seek AMF funds.
“Their reputation is not just for today so they are keen to reach a satisfactory solution fast,” Jassim al Mannai, director general of the fund, told reporters.