DUBAI (Reuters) – State-owned conglomerate Dubai World, which is restructuring some $22 billion in debt repayments, has yet to arrive at a formal standstill agreement with its creditors.
The company rocked global markets on November 25 with plans to request a delay on repaying $26 billion in debt linked to its main property units Nakheel and Limitless World.
Dubai World — which staved off default on a $4.1 billion Islamic bond linked to Nakheel after a last-minute bailout from Abu Dhabi — is working on a more specific restructuring plan, having already initiated moves to downsize at Group level.
In June last year, Dubai World hired AlixPartners, turnaround experts which advised on General Motors’ bankruptcy, to help restructure the group. The firm said in October it had cut 12,000 jobs, or 15 percent of its global workforce.
Here are some key scenarios which could unfold in the coming days and weeks.
DE FACTO STANDSTILL
A formal standstill agreement with Dubai World’s 97 creditors may never materialize as long as the conglomerate keeps servicing interest payments and presents a concise restructuring plan by the end of April.
The biggest looming deadline is May 13, 2010 — the maturity date for a $980 million Nakheel Islamic bond, or sukuk.
An unofficial coordinating committee of seven banks, believed to carry the most exposure, is in negotiations with the company on a regular basis but progress has been slow partly due to the complexity of the situation.
Although Dubai World did not publicly state a timeframe for requesting a standstill from creditor banks, a December meeting with lenders suggested something would be forthcoming in January.
Any possible standstill request is expected to ask creditors to delay bond and loan repayments for a specified period while Dubai World comes up with a detailed plan for restructuring its debt pile, initially expected by the end of April.
However, the addition of Bank of Tokyo-Mitsubishi to the informal creditors committee in January — the seventh bank to join — is one of the reasons for a delay.
The lack of information provided to guide investors has also contributed to the unease, bankers say.
“Dubai World is a complete black box and mystery,” said a Gulf-based banker at a major international bank. “It doesn’t appear there’s been any progress.”
Dubai World will need to offload assets to help meet pending debt obligations. The company has already ring-fenced prized possessions such as DP World.
The first asset to hit the auction block will likely be Inchcape Shipping Services (ISS), one of the world’s biggest marine management firms, which was already been prepared for sale prior to the November 25 announcement.
Dubai World’s private equity arm Istithmar World bought the company for $285 million in 2006 from London-based private equity fund, Electra Investment Trust.
A private equity firm is the most likely buyer for the unit, which has some 200 offices globally.
Istithmar World is among the units Dubai World has said will not be part of the restructuring.
“From Dubai World’s standpoint, they’ve got debt obligations coming due over the coming years and they’ve got to sell assets to meet them,” said Khuram Maqsood, managing director of Emirates Capital.
“I think they’re keen on finding cash wherever they can.”
Other possible sales could include units from Dubai World’s troubled property subsidiaries Nakheel and Limitless.
Some of the high profile international assets held by Istithmar World could also go, following on from the sale at auction of W Hotel in Manhattan and two buildings owned by Istithmar in London in late 2009.
Istithmar World bought U.S. luxury retail chain Barneys for $942 million in 2007. Barneys hired restructuring advisory firm Perella Weinberg last August to help it mull options that would shore up its financial position.
The move came amid speculation Istithmar is freezing investments as part of a restructuring that may result in its sale or a sale of assets.
Dubai World is relying on the goodwill — and self-interest — of creditors to patiently wait for a proposal on how it plans to meet its obligations.
However, if one bank steps out of line and issues a notice of default, the entire restructuring process would be thrown into peril. Any so-called rogue bank would be taking a risk by invoking default since this would risk tipping Dubai World into bankruptcy under a tribunal formed late last year.
In December, Dubai enacted a bankruptcy law it modeled on U.K. and U.S. law and said it will set up the tribunal to hear any cases submitted against Dubai World.
The creation of the tribunal — based at the Dubai International Financial Center, the emirate’s primary hub for foreign banks and financial firms — was a bargaining chip as Dubai World readied to sit down with creditors over the planned restructuring.
Few analysts expected it would be needed at all, especially as the tribunal’s decisions have no recourse for appeal.
Dubai World’s plan, parts of which it would make available to creditors, is not expected to be ready before the end of February. As part of the process, advisors are identifying which businesses are viable and which assets can go on the block.
“The longer they wait to communicate to the market, the more likely the number of pessimists will outnumber everyone else,” said another Gulf-based banker.
The plan entails controlling spending as a first step, developing a detailed business plan for every Dubai World unit — over 180 businesses — and presenting it to the banks.
There will be details on the payment arrangements with creditors, including a timeline. Options for repayment include extension of maturities, writedowns and debt for equity swaps.
Once the business plan is readied, Dubai World chief restructuring officer Aidan Birkett, from Deloitte, signs off on it and it goes to the Supreme Fiscal Committee and then to the creditor coordinating committee and its advisor, KPMG.
That committee consists of Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, as well as UAE banks Emirates NBD and Abu Dhabi Commercial Bank and Japan’s Bank of Tokyo-Mitsubishi bank, a unit of Mitsubishi UFJ Financial Group.
Their approval is key — given the size of their exposures — and would likely result in the rest of the creditors signing up to the plan.