Bankers gathered in Dubai on Wednesday to hammer out a $26 billion debt plan with state-owned Dubai World as a repayment deadline loomed, adding to pressure on the glitzy emirate to settle the conglomerate's debt.
Core creditors representing 97 banks met to finalize months of talks on how Dubai World
Markets anticipated a deal favorable to lenders, with the cost of insuring Dubai sovereign debt falling and bond prices rising for Dubai World unit Nakheel, the property firm that built a giant island replica of the Earth.
Dubai is expected to lean heavily on its oil-exporting neighbor Abu Dhabi, the leading member of the seven-member United Arab Emirates federation, which has stumped up $10 billion in bailouts and is expected to write another cheque.
It looks very much like the main scenario of an Abu Dhabi bailout is taking shape, said David Butter, director for Middle East and North Africa at the Economist Intelligence Unit.
I doubt that we will ever be able to get an authoritative figure on it, but the bottom line is that Abu Dhabi seems to have decided that it has to pay whatever is necessary to avoid serious reputational damage for the UAE as a whole.
Dubai's shock request for payment delays in November shook global markets and raised wider concerns among international investors about transparency and disclosure standards in the region.
Dubai World's debt troubles have also weighed on the local banking sector, which is heavily exposed to Dubai World. Moody's estimated total UAE banks' exposure to be around $15 billion.
Dubai spent wildly during the boom years on infrastructure and development, erecting tens of thousands of luxury homes in the space of six years, only to see construction sites go silent and rent go unpaid as the financial crisis swept the Gulf.
Speculation during the months-long debt talks has centered on the amount of new aid from Abu Dhabi and on the size of the haircut, or cut in principal, that lenders will swallow.
Another of Dubai World's construction units, Limitless, has a $1.2 billion Islamic loan due on March 31 and could be the next tripwire in the conglomerate's path.
Separately, ports operator DP World
DP World downplayed speculation that it would use plans to list on the London Stock Exchange by mid-year to raise new capital.
But the company's chief executive said it was up to the parent to decide whether to reduce its stake at the same time.
The ultimate decision is with the shareholder, Chief Executive Officer Mohammed Sharaf told reporters.
DP World's assets are ring-fenced from any potential claims by creditors, and Dubai World has said the restructuring plan does not include key assets such as DP World.
DP World has enough cash on its balance sheet and does not see any immediate financing requirements, the company's finance chief said.
DP World's shares rose to a seven-month high on Wednesday, while analysts said the London listing would provide more support for the stock.
We expect the London listing, although most likely delayed till third quarter 2010, will provide underlying support to liquidity over the medium term, wrote Ian Munro, MAC Capital head of research.
Dubai World, which also owns Barneys department stores and entertainment company Cirque du Soleil, is meeting with a seven-member committee representing the 97 creditors.
The panel is made up of Standard Chartered
A seventh lender, Bank of Tokyo-Mitsubishi, a unit of Mitsubishi UFJ Financial Group <8306.T>, joined the panel this year.
(Additional reporting by Raissa Kasolowsky, Amran Abocar, Amena Bakr, Rachna Uppal, Nicolas Parasie and Carolyn Cohn; writing by Thomas Atkins; editing by Will Waterman)