* Dubai World proposes to make 1st big repayment early,
* Strong Dubai economy may help persuade lenders
* Unclear if new interest rate, asset sale timetable would
* Lloyds attempt to cut exposure was called off - sources
* Other banks believed to be considering divestments
By David French
DUBAI, Aug 1 Economic recovery in Dubai is
pushing both creditors and debtors to weigh new strategies in
the $25 billion restructuring of state-owned Dubai World, one of
the Middle East's largest ever debt deals.
The conglomerate has begun talks to adjust a restructuring
plan originally signed in 2011: it would make its first big
repayment early, in exchange for more time before a second and
much larger obligation needs to be repaid, two sources with
knowledge of the matter said.
At the same time, some foreign banks are seeking to divest
parts of their exposure to Dubai World as improved
confidence in the emirate raises debt values to levels which
make offloading favourable.
Lloyds, one of the banks on the committee which
negotiated the original debt deal, attempted to sell off more
than $450 million of its exposure at the end of June, three
Other lenders are also reviewing whether to change their
exposures to Dubai World - most notably two banks which might
potentially offload over $500 million of debt between them,
according to investment house Exotix.
Dubai World and Lloyds declined to comment. The sources
spoke on condition of anonymity because of the commercial
sensitivity of the matter.
RESTRUCTURING A RESTRUCTURING
Under Dubai World's original restructuring plan, it was
scheduled to repay a $4.4 billion chunk of debt in May 2015 and
an additional $10.3 billion in 2018.
The deal was supposed to allow time for the diverse
conglomerate's assets to recover in value, after they were hit
by the global credit crisis and a property crash in Dubai. This
would permit them to be sold to fund repayments to creditors.
Initially, many assets recovered only slowly and some, such
as U.S.-based luxury retailer Barneys, saw their values drop.
This inhibited the sale process.
However, some progress has been made in recent months and
small repayments have been made to creditors, under a mechanism
which distributes cash from asset sales once a certain threshold
has been reached.
Dubai's economic recovery has also helped, with other
state-owned entities gaining the financial strength to take on
assets from Dubai World companies, such as Investment Corp of
Dubai's acquisition of the landmark Atlantis hotel.
This led one of Dubai's top executives, Mohammed
al-Shaibani, to tell Reuters in March this year that Dubai World
had the cash to make the May 2015 repayment.
However, he also said various options involving the 2018
payment would be discussed with lenders. Blackstone Group
was named as an adviser to Dubai World in April.
Under plans being discussed between Dubai World, its
advisers and senior lenders including HSBC and Emirates
NBD, the 2018 maturity would be extended to 2022, in
exchange for early repayment of the full amount due next May,
the two sources said.
The discussions have not so far included the full creditor
group, and have not touched on whether a new interest rate would
be set on the extended 2022 maturity, or on whether a new
timetable for asset sales would be put in place, one of the
Dubai World will be hoping to use the emirate's renewed
economic strength, boosted by a resurgent local real estate
market and growth in core industries such as tourism, to
convince creditor banks to grant it additional time. Goodwill
accrued from the small repayments made to date may also help.
If Dubai World succeeds, it may ultimately be able to pay
back more of its debt with retained earnings rather than the
proceeds of asset sales, allowing it to keep some key businesses
which it would otherwise have to divest.
Other Dubai firms have already used improved lender
sentiment to get better terms on their borrowings - the latest
is DP World, which tripled the size of a $1 billion
loan and cut its cost by a third last month.
While these talks are underway, banks with big chunks of
Dubai World debt are reassessing their stances. Lloyds attempted
to secure a price above 80 cents on the dollar when it offered
to sell over $450 million of exposure at end-June, but pulled
the deal when it only got bids in the 70s, the sources said.
One of the reasons for the failure of the auction may have
been uncertainty over whether the 2018 maturity will be
extended. The British bank has around $535 million of Dubai
World exposure in total, a July 21 note from Exotix said.
The sources didn't know the motives for Lloyds' interest in
a sale but the lender, 24.9 percent owned by the British
government, is under pressure to focus on its domestic business.
"If I saw the debt reach a level which I had already
provisioned against, I would sell out," said one of the sources,
at a bank which has exposure to Dubai World.
Exotix said that in addition to Lloyds, a British lender was
rumoured to be eyeing a sale of $500 million of Dubai World debt
and a European bank was aiming for a $50 million divestment.
Danny Reynolds, associate director at Exotix, said the
uncertainty over the 2018 payment and failure of the Lloyds
auction had blurred valuations of the Dubai World loans, but he
would not expect bids in this second round of attempted sales to
be as high as those presented to Lloyds.
If sales of Dubai World debt do go through, they could make
the group's effort to extend maturities beyond 2018 more
difficult. Specialist distressed debt funds could come to own a
large slab of Dubai World debt, instead of commercial banks
which are eager to retain business relationships in Dubai and
might therefore be more willing to compromise.
Another bank watching the situation carefully is Emirates
NBD, the largest single creditor to Dubai World. The bank,
Dubai's largest, has said it could reclassify its exposure to
the group as a performing loan in 2014, allowing it to reverse
the provision held against it - around 409 million dirhams ($111
million) of an outstanding 9.14 billion dirhams.
"We will review our Dubai World exposure in the coming time
in line with the existing restructuring plan and the ongoing
discussions that are reported to be taking place," Shayne
Nelson, chief executive of ENBD, told reporters on July 24.
(Editing by Andrew Torchia)