In a significant development this morning, Dubai World announced that it has achieved an in-principal agreement on the headline economic terms of Dubai World’s $23.5bn restructuring deal with at least 60 per cent of the company’s bank lenders.
“Dubai World is pleased to announce today that headline economic terms have been agreed in principle with the Coordinating Committee (CoCom), representing the company’s financial creditors, and the Government of Dubai on the restructuring of $23.5bn of total financial liabilities. The CoCom accounts for approximately 60 per cent of the bank lenders,” the company said in a statement sent to Emirates Business.
“The restructuring proposal requires the agreement of the rest of Dubai World’s financial creditors. The company will continue to work in conjunction with the CoCom to achieve this,” the Dubai World statement added.
A Dubai Government statement welcomed “this important milestone.” HH Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, said in the
statement: “Dubai World has today announced that headline economic terms for its restructuring have been agreed in principle with the Coordinating Committee, accounting for a majority of the company’s financial creditors, and the Government of Dubai. A final proposal reflecting these terms will now be submitted by the Coordinating Committee to all of Dubai World’s lending banks.
“The Government of Dubai welcomes this important milestone, which is the result of considerable efforts from a large number of stakeholders who all share a common interest in Dubai’s future.”
The Dubai World statement quoted Aidan Birkett, Chief Restructuring Officer of Dubai World, as saying: “We are pleased that we have received unanimous support in principle of the CoCom on the headline economic terms to our restructuring proposal. This is an important milestone and reflects our efforts to achieve the best possible solution for all stakeholders. The proposal puts the company on a sound financial footing and reflects the continued support of the Government of Dubai and its lenders. It offers the company the ability to maximise the value of its assets over the medium to long term.”
The company expects a full agreement with all of the company’s creditors with the first half of 2010. “I don’t see why we shouldn’t get a full agreement,” Aidan Birkett told Zawya Dow Jones in a phone interview Thursday.
“The deal recognises the different funding costs of various creditors and offers flexibility in payment terms to compensate for this. This is positive and in our view makes it more likely that the proposal will be accepted by all the creditors,” said Khatija Haque, analyst at Shuaa Capital.
“That 60 per cent of financial creditors have agreed to the proposal in principle is a significant achievement and again, bodes well that the rest of the creditors will also sign up to it,” she said.
“It could take several weeks before we see final signatures,” she added.
Dubai World has refined the proposal “to provide options that better accommodate the needs of our large and diverse lending group” and sweetened the deal modestly since it presented its restructuring proposal on March 24, 2010.
“The final proposal has not changed in its fundamentals from the terms announced on 25 March 2010,” the statement said, adding that, “in particular, there is no additional financial support from the Government of Dubai. However the PIK [payment-in-kind] interest, which the company pays using part of the future value of its assets in eight years, has been modestly enhanced.”
Dubai World’s financial indebtedness, post restructuring, will be approximately $14.4bn and comprise two tranches – Tranche A of $4.4bn and Tranche B of approximately $10bn with five and eight year maturities, respectively. “Each lender will receive a rateable portion of both Tranche A and Tranche B, on the terms described in the attached table (PDF format), and will be able to select options for its Tranche B participations,” the company statement said.
"Bank lenders who have funded in USD will be able to elect between Option 1 and 2 while lenders who have funded in AED will, in addition to Option 1 and 2, be able to elect Option 3 below. Banks will be entitled to elect different options for which they are eligible for different parts of their debt.
“Option 1 has been designed to address the preferences of lenders who value an increased shortfall guarantee. The shortfall guarantee would be used if the company cannot repay or refinance Tranche B at maturity.
“Option 2 offers lenders a higher overall Payment-in-Kind (“PIK”) coupon for which lenders forgo the increased shortfall guarantee offered in Option 1.
“Option 3 is in recognition of the differential cost of funds between EIBOR and LIBOR. Lenders who extended facilities in AED which include a number of international banks and who elect this option forgo a shortfall guarantee but receive higher cash and PIK coupon.”
UAE shares shot up on the news and the Dubai Financial Market General Index was up +1 per cent at 1702.09 intra-day, with market heavyweights Emaar Properties, Arabtec and DFM all up by around 2.5 per cent on positive sentiment.
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