INSTANT VIEW: Dubai World seeks debt pause

DUBAI (Reuters) - The government of Dubai will ask creditors of its two flagship firms, Dubai World and property group Nakheel, to a debt standstill as it restructures the Dubai World group, the government said in a statement on Wednesday.

In a separate announcement, the Dubai government also said it had raised a further $5 billion as part of a $20 billion bond program launched this year, half of what was expected, placing the debt with two Abu Dhabi-controlled banks.

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ANALYSTS' COMMENTS ON DUBAI WORLD RESTRUCTURING:

BANKER IN THE SYNDICATED LOAN MARKET

"This isn't good news for bank market investor sentiment to my mind - not least because a significant portion of bank exposure driven over the last 3 years is with Dubai World and group companies."

"I sense bank credit committees will be reluctant to commit in size (some international banks are reluctant to lend anything right now and for the foreseeable future) given the stream of bad news out there on current loan portfolio positions held by banks. This latest news cannot help at all."

BROKER IN THE CREDIT INSURANCE MARKET "It is a big event -- the biggest sovereign-related credit event since the start of the crisis. It is not entirely unexpected but of course the focus had been on Ukraine. As for wider market impact, it is too soon to say."

SHAKEEL SARWAR, SICO INVESTMENT BANK HEAD OF ASSET MANAGEMENT.

"It's shocking because for the past few months the news coming out has given investors comfort that Dubai would most probably be able to meet its debt obligations and most analysts were of the view that Nakheel's commitments would be met."

"Abu Dhabi has been supportive of Dubai, but it appears this support is not enough for Dubai to meet its obligations on time.

"In the worst case scenario, Abu Dhabi would be there to help Dubai and I don't see the union being in danger."

"If this is taken as a technical default, then equity markets will react extremely negatively and all this year's gains could be wiped out in a few a day.

"The priority now will be to raise money. The best course of action would be to get a temporary reprieve, a 1-2 year cushion until markets improve. Right now, asset sales would be distressed and wouldn't get the best price, so it wouldn't be the best option for Dubai Inc."

IAN MUNRO, MAC CAPITAL HEAD OF RESEARCH

"The net effect of the announcements on local credit and equity markets is likely to be negative, given that the Nakheel Bond has traded at levels factoring in the bond being fully repaid on time."

"The statement "at least May 2010" is also likely to adversely affect investor confidence in the timing of the repayment of Nakheel's debt.

"Further, the Financial Support Fund has obviously not deemed Dubai World to be of immediate strategic importance, adversely impacting the probability that a significant amount of funds from the on-going $6.5 billion debt program will flow to Dubai World.

"We expect volatility in the share price of DP World DPW.DI purely due to sentiment relating (to its parent company) Dubai World," Ian Munro, Ian Munro, MAC Capital head of research, wrote in a research note. "We expect weakness on Emaar Properties EMAR.DU, Dubai Financial Market DFM.DU, Arabtec ARTC.DU, Dubai Islamic Bank DISB.DU, DP World DPW.DI and major banks, albeit on lighter volumes traded."

OKAN AKIN, CREDIT STRATEGIST, RBS IN LONDON

"The timing could not have been worse. If Dubai had came with a similar proposal 6 months it would not have been so bad but given Dubai authorities were making supportive comments all along, announcing a restructuring just 3 weeks before maturity will hurt a lot of investors.

If this is involuntary (restructuring) it may have pretty negative consequences for region. Most issuers in region are rated on the basis of support assumption (from the sovereign) and if Dubai lets these big guys fail, rating agencies will be reluctant to issue generous ratings in future. Second it's the largest Islamic finance instrument globally and most Islamic funds will be involved it will hurt the sukuk markets. Thirdly I assume Dubai is a big entity and lots of local banks will probably have exposure so it may create problems in the banking sector.

ECKART WOERTZ, ECONOMICS PROGRAMME MANAGER AT GULF RESEARCH CENTRE

"The standstill requests comes as a surprise, especially after additional finance from Abu Dhabi has been raised. The market had expected a timely repayment of the $3.5 billion sukuk and spreads had narrowed. This will destroy a lot of confidence."

The Abu Dhabi banks are government owned, so it's a continuation of the Abu Dhabi bailing out Dubai story. That this is not enough to repay the Nakheel bond comes as a surprise.

LUIS COSTA, EMERGING DEBT STRATEGIST, COMMERZBANK, LONDON

"We are seeing a massive drop in the Nakheel 2009. It was trading at 111 this morning.

"The market misread the situation a bit given the recent boost on middle east new bond issuance. In the past month we saw over $15 billion in sovereign debt issuance in the region and the market thought this was probably going to secure the refinancing of troubled companies that have links to the state."

"This will be making headlines for a while. We will probably see Dubai 5 year CDS at 430 bps which is 'B' (rating) level. We foresee more noise."

ALI KHAN, MANAGING DIRECTOR AT ARQAAM CAPITAL

"The market would have preferred the amount to have been settled. Having said that, they are merely asking and exploring the matter with their creditors. There's nothing wrong with that, and it's important this is happening on a consensual basis rather than unilaterally. Given the amount it is only fair for Dubai World to wish to explore their options.

KEITH EDWARDS, HEAD OF ASSET MANAGEMENT AT DOHA-BASED INVESTMENT CO THE FIRST INVESTOR.

"It looks like a request to open a negotiating position. I would think creditors would react quite negatively unless they were previously briefed.

"Dubai credit default swaps have expanded since June and I wouldn't be surprised if there was a further expansion."

HAISSAM ARABI, CHIEF EXECUTIVE AT GULFMENA ALTERNATIVE INVESTMENTS

"The market will probably need more clarification so it does not leave room for confusion."

ANALYSTS' COMMENTS ON THE $5 BLN BOND:

IAN MUNRO, MAC CAPITAL HEAD OF RESEARCH, WROTE IN A RESEARCH NOTE.

$5 billion bond:

"The scheduled nature of the issuance demonstrates that funding from Abu Dhabi has become more conditional than earlier in the year."

ROBERT MCKINNON, AL MAL CAPITAL MANAGING DIRECTOR said the stock market's reaction would depend on whether the $5 billion was part of or instead of the second $10 billion bond tranche long promised by the Dubai government.

If Wednesday's issue was instead of the $10 billion bond, Dubai credit default swaps would probably rise, he said, with equities also likely to sell off.

"It would imply that Dubai was having difficulties getting a full subscription for the $10 billion bond," added McKinnon.

HAISSAM ARABI, CHIEF EXECUTIVE AT GULFMENA ALTERNATIVE INVESTMENTS

"The $5 billion will be there to fund Dubai's short-term obligations and it shows the government's willingness to meet these commitments.

"The issue also shows Abu Dhabi is backing Dubai, which is very important, but overall I'm neutral on how the markets will react."

MATTHEW WAKEMAN, EFG-HERMES MANAGING DIRECTOR FOR CASH AND EQUITY-LINKED TRADING.

"I don't think there will be a lot of reaction (on stock markets) - we'll be more tied to what happens globally and don't think the bond will be a great catalyst.

"Everyone knows Dubai is raising money and until we know where that cash is going it's hard to ascertain how positive it will be for the market. It's not a negative, but it's not a buying reason in itself."

HEAD OF A LARGE INTERNATIONAL INVESTMENT BANK, WHO ASKED NOT BE NAMED

"It's good to see Dubai tapping all available sources using the full toolkit. However, the speed by which they continue to do this is quite important and demanding. The undertone, you could argue, is that they should have started earlier.

"There's been a lot of issuance of Dubai sovereign related debt recently, $5 billion is a respectable number, going above that would really start testing market appetite in general."

JOHN SFAKIANAKIS, CHIEF ECONOMIST - BANQUE SAUDI FRANSI

"It's an important market signal as a confidence booster for Dubai and its creditors and for Abu Dhabi, be it public or private, being the strategic provider of that confidence. "

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(Compiled by Matt Smith; Editing by Firouz Sedarat)