RPT-Dubai's debt standstill redefines Gulf lending - bankers

(Refiles fixing tense in first paragraph)

By Tessa Walsh and Christopher Mangham

LONDON Dec 1 (Reuters) - Dubai's struggle to stave off a wider debt restructuring by placing short-term debt maturities under a standstill agreement is redefining Middle Eastern lending, banking sources said on Tuesday.

Dubai World said on Monday that it had started negotiations with its lenders over $26 billion of debt owned by its main property firms Nakheel World and Limitless World that matures before the standstill deadline of May 30, 2010.

This indicates a staggered approach to solving the Emirate's debt problems -- tackling bond and loan maturities as they fall due -- which will do little to reassure loan and bondholders who are scrambling to assess support for their debt, bankers said.

"If banks are put into a Dubai World restructuring, they will have to decide whether to cut their lines to Dubai and if they would be prepared to refinance other Dubai debt," a banker close to the situation said.

The $26 billion of debt affected under the standstill includes a $3.52 billion sukuk bond for Nakheel that matures in December and another 3.6 billion dirham bond due May 2010.

A $1.2 billion Islamic loan for Limitless that was signed in March 2008 and matures in March 2010 is also included, according to Thomson Reuters LPC data, along with other Dubai World debt. bankers said.

"There is also Dubai World debt which is not publicly known that is being addressed at the same time," a second banker close to the situation said.

Bankers said other Dubai World debt is started to be identified that includes bilateral loans from individual banks to various companies in the group.

"There are a number of bilateral (loans) coming out of the woodwork it seems so it's very difficult to work out exactly how much (is owed) and to whom, which doesn't help," a third banker said.

DUBAI WORLD'S $5.5 BLN LOAN

A $5.5 billion loan for Dubai World is not included under the $26 billion figure as the first repayment is due in June after the standstill expires, several bankers said.

Lenders however expect this loan to be restructured, possibly along with the rest of Dubai's international debt, which includes $45 billion of syndicated loans, according to Thomson Reuters LPC data.

Under a standstill agreement, steering committees of bondholders and lenders with the largest exposure to the borrower usually gather to start formulating restructuring proposals.

The government of Dubai, acting through the Dubai Financial Support Fund (DFSF) appointed Aidan Birkett, Managing Partner, Corporate Finance at Deloitte LLP as Chief Restructuring Officer for Dubai World along with Moelis & Co and Rothschild.

There has been some discussion between banks about appointing KPMG to act as an auditor for any proposals received, the first banker said.

Dubai World's $5.5 billion loan is documented under UK law and any information received would be distributed by agent bank Royal Bank of Scotland, he added.

In Dubai's instance however, some banks may be reluctant to join steering committees for fear of damaging lucrative lender-borrower relationships, several bankers said.

"No-one wants to say bad things to Dubai with so much exposure and if Abu Dhabi bails them out they'll be back in the sun again," the first banker said.

NO MORE NAME LENDING

Most Middle Eastern borrowing consisted of syndicated loans, signed with a nod and a wink on a 'name lending' basis, assuming that the proximity of the company's management to the royal family would ensure repayment.

Going forward, lenders will demand cast-iron guarantees from sovereign governments for any state-lined company borrowing, several bankers said.

In Dubai's case, a sovereign guarantee will not be sufficient and lenders are likely to demand explicit guarantees from the UAE government, they added.

"Dubai's sovereign guarantee is meaningless - they said they'd repay debt when it was due and now they're not," the first banker said.

In the meantime, lenders are scouring all loan documentation to try and identify possible protection as they try to determine which debt is vulnerable. "Everyone's looking at loan documents and if they were name lending are asking if the owner will look after it or if they should start to worry," he added.

(Reporting by Tessa Walsh and Christopher Mangham) ((tessa.walsh@reuters.com; +44 20 7542 4048; Reuters Messaging: tessa.walsh.reuters.com@reuters.net))