January 11, 2010 / 2:35 PM / 11 years ago

Q+A-Dubai World set to make formal standstill request

DUBAI, Jan 11 (Reuters) - Dubai World is expected to soon make a formal standstill request to creditors for $22 billion in debt while it devises a restructuring plan.

Dubai sent shockwaves through global markets on Nov. 25 when it said it would request a standstill on billions of dollars in debt linked to Dubai World and its property units Limitless World and Nakheel [NAKHD.UL], developer of palm-shaped islands.

Following are some answers to frequently asked questions about the upcoming standstill agreement:

WHAT WILL THE STANDSTILL INVOLVE?

Lenders expect one umbrella agreement from Dubai World. The standstill request will ask the more than 90 creditors to agree to delay bond and loan repayments for a specified period of time, while the company comes up with a detailed plan for restructuring its debt pile.

WHY IS DUBAI WORLD REQUESTING A STANDSTILL?

A standstill is usually requested when a company is unable to service its debt, and needs time to devise a restructuring plan. Dubai World laid bare the depth of its financial difficulties last November. A $10 billion lifeline from wealthier neighbour Abu Dhabi last month helped stave off a default on Nakheel’s $4.1 billion Islamic bond and provided enough funds to service debt until April. These funds are conditional upon a standstill agreement being secured. Banks had lent to Dubai government-linked firms with the implicit understanding they were backed by Abu Dhabi or the federal government.

WHO ARE THE KEY PLAYERS?

Creditors - There are more than 90 creditors with exposure to Dubai World and its subsidiaries.

“The Big 6” - A coordinating committee of six banks has been formally formed to negotiate on behalf of all creditors. These are Royal Bank of Scotland (RBS.L), which is also the agent bank on Dubai World’s $5.5 billion loan; Standard Chartered (STAN.L); Lloyds (LLOY.L); HSBC (HSBA.L); and local lenders Emirates NBD (ENBD.DU), and Abu Dhabi Commercial Bank (ADCB.AD).

Auditor - The banks have appointed KPMG to audit proposals from Dubai World.

Restructuring officer - The government of Dubai, acting through the Dubai Financial Support Fund (DFSF), appointed Aidan Birkett of Deloitte as chief restructuring officer for Dubai World along with advisers Moelis & Co and Rothschild.

Legal advisers - Law firm Latham and Watkins is advising Dubai World on the standstill while Clifford Chance has been appointed to advise on the company’s restructuring plan.

WHICH PAYMENTS WOULD THE STANDSTILL AFFECT?

The standstill will apply to about $22 billion in Dubai World’s outstanding loans and bonds. The next Dubai World obligations to mature are for Limitless, with $1.2 billion in March, Dubai World, with $2.1 billion in June, and Nakheel’s $980 million sukuk, or Islamic bond, in May.

WILL CREDITORS ACCEPT THE STANDSTILL REQUEST?

Bankers have said the lenders have few alternatives other than to accept the standstill request, which will pave the way for a debt restructuring and rescheduling. However, expectations are that security will take the form of an explicit guarantee from the federal government of the United Arab Emirates (UAE) or the Abu Dhabi government. Dubai’s new bankruptcy law could provide additional incentive to strike a deal. [ID:nLDE5BD03U] Banks will also want to avoid a debt default, forcing them to write off loans, which would show up on their balance sheets.

WHAT IF CREDITORS REJECT THE STANDSTILL PROPOSAL?

Dubai would have to repay all outstanding obligations as they matured, which is considered virtually impossible under the current circumstances. Creditors could try to seize collateral or equity stakes in the companies and sell the assets but syndicated loans agreements are quite complex and Dubai has already moved to ringfence key assets, such as ports operator DP World.

HOW LONG WOULD THE STANDSTILL LAST?

Dubai World is aiming to submit a detailed restructuring plan to creditors by the end of April, according to a company spokesperson. Until then, all interest payments would be paid.

WHAT HAPPENS IF A STANDSTILL IS AGREED?

Rescheduling debt and restructuring the company would begin and most likely involve partial repayment through asset sales, stretching the remaining loans out over a longer maturity period and matching repayments to cash flows. Bankers have said one scenario could be to negotiate each company’s outstanding debt payments individually and not with the parent company. There is also rising concern about refinancing the rest of Dubai’s outstanding debt, due for maturity in the next two to three years. The standstill would only apply to Dubai World, but once agreed, other Dubai Inc entities could choose to take a similar path. (Reporting by Rachna Uppal; editing by Karen Foster)

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