8.17 AM Tuesday, 19 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 05:07 06:20 12:29 15:54 18:33 19:47
19 March 2024

DW debt deal to boost UAE bank ratings: Moody’s

Moody's says DW would be able to make interest repayment on time. (FILE)

Published
By Staff

An agreement reached between Dubai World (DW) and most of its creditors this week will strengthen the UAE banks’ credit rating and allow them to ease provisioning, Moody’s Investor Service said on Monday.

The rating agency also said it believed DW would be able to make interest repayment on time as part of the debt restructuring deal announced by the government-owned conglomerate on Friday.
 
“The conclusion of DW’s restructuring saga is a positive development for the UAE banking system and puts an end to the uncertainty that the threat of liquidation had created,” it said in a statement sent to Emirates 24|7.
 
“Had an agreement not been achieved, the potential liquidation of Dubai World could have seriously increased the impairment costs that banks would have incurred, throwing confidence in the UAE banking system into havoc.”
 
According to the DW announcement, the amount of restructured debt is estimated at $24.9 billion, of which $14.4bn is owed to creditor banks and the remaining balance to the Dubai government.
 
Moody’s said UAE credit banks could suffer from losses of between 10 and 20 per cent, adding that they would be able to absorb such impairment charges without materially impacting their capital positions.
 
“We also note that as of the second quarter of 2010, most UAE banks had set aside sufficient provisions against Dubai World either in the form of specific or collective provisions… further provisions may not be necessary during the lifetime of the loans as we expect the entity to be able to honour the restructured terms (with the lower interest payments).”
 
The statement said DW’s ability to make principal repayments in five years and eight years would largely depend on expected revenues from future asset sales.
 
It added that a refinancing risk could occur in five years and eight years, depending on the level of Dubai World’s future revenues and assuming there is no additional external support.
 
It noted the DW announcement mentions that bank creditors have also agreed to the separation of Nakheel’s assets from its parent DW and that discussions about restructuring Nakheel’s liabilities with its creditors are progressing.
 
“The conclusion of Dubai World’s debt restructuring programme, therefore, opens the door to the debt restructuring of Nakheel, a successful conclusion of which would be another positive step towards resolving the outstanding debt issues of Dubai government-owned entities,” Moody’s said.
 
In its Friday’s statement, DW announced that 99 per cent of its bank lenders had accepted and endorsed the final terms of its debt restructuring plan as proposed by the group on 20 May.
 
The $14.4bn restructuring is expected to convert all outstanding bank debt into two tranches of five-year and eight-year maturities in 3:7 proportions.