DUBAI (Reuters) - Struggling state conglomerate Dubai World DBWLD.UL is ready to force any rebel lenders back into line if they balk at the terms presented to them under a $14.4 billion debt restructuring plan.
The indebted conglomerate would use a special tribunal set up by decree to hear disputes over the delayed repayment plan, a source familiar with the matter said ahead of a key creditor meeting in the emirate. A banker in the meeting said that was the message lenders got.
“Basically they said ‘this is the deal and the alternative is we’ll invoke the decree and then you’ll have to wait a long time for your money back’,” said a Gulf-based creditor bank.
A copy of the closely guarded deal document seen by Reuters showed how use of the tribunal would work, and outlined the potential cost to lenders.
Thursday’s meeting took place in a lavish pink resort hotel at the tip of a man-made palm tree-shaped peninsula — one of the ambitious projects that left Dubai gasping for cash after the global real estate bubble burst in 2008.
The Gulf Arab emirate is laboring under more than $100 billion of debt, including the $14.4 billion Dubai World debt under discussion on Thursday.
“It’s unlikely all 73 banks will accept terms, which means it will likely go to a tribunal,” the source said, adding that if the majority support the plan, the tribunal can compel holdouts to get in line so the restructuring can proceed.
Dubai set up the special tribunal to be arbiter of disputes between lenders and the stricken state company.
A deal has already been agreed with core lenders representing 60 percent of the loans.
The company, whose operations include real estate, ports and private equity investments, needs two-thirds acceptance to be able to take the deal to the tribunal in the event of a rebellion. Any lender can use the tribunal, but none has yet.
The document seen by Reuters showed that the terms presented were unchanged from those agreed by the core group. It revealed for the first time how asset sales would fund the revised repayment schedule, along with a warning that lenders would come off much worse if Dubai World ends up in liquidation.
According to a source in the meeting, one banker complained that lenders to Dubai World subsidiary Nakheel NAKHD.UL were getting a better deal. IDnLDE66D0GO
A Dubai World statement said it expected to complete the restructuring in coming months.
Bankers picked their way to the meeting past holidaymakers enjoying cut-price deals at the resort, which boasts a huge aquarium in one air-conditioned lobby protecting guests from the searing summer heat outside.
Accountancy firm Deloitte’s Aidan Birkett has become the public face of Dubai World and led the meeting. Chairman Sultan Ahmed bin Sulayem, a childhood friend of Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum, is rarely seen in connection with the company since the debt crisis unfolded.
The Dubai government is the ultimate owner of Dubai World, part of the network of state firms known locally as “Dubai Inc”. Oil-rich Abu Dhabi, the capital of the United Arab Emirates, stepped in last year to help Dubai with its debt burden.
The seven-strong core group of Dubai World lenders has agreed to reschedule repayment of loans due in the next few years into a five to eight-year package paid at between 1 and 3.5 percent.
Investors in the region hoped the meeting, the first all-bank gathering since December, would pass off without any negative publicity.
“As terms stand at the moment it’s already priced in, but there’s downside risk if some banks refuse to sign or hold out for better terms,” said Matthew Wakeman, EFG-Hermes managing director for cash and equity-linked trading in Dubai.
The seven-member coordinating committee of banks comprises HSBC (HSBA.L), Lloyds (LLOY.L), Royal Bank of Scotland (RBS.L), Standard Chartered (STAN.L), Bank of Tokyo Mitsubishi (8306.T), and local lenders Emirates NBD ENBD.DU and Abu Dhabi Commercial Bank ADCB.AD. (Additional reporting by Rachna Uppal; Writing by Andrew Callus; Editing by Samia Nakhoul)