We are still awaiting a formal announcement from the government of Dubai regarding the restructuring of the USD26 billion of debt. As we get closer to the announcement date, the market seems to be recovering. Given that GCC markets tend to be leaky, the news flow suggests good news.
The plans were informally discussed with the creditor’s representatives, in which they were offered different prepayment proposals, none of which will have a “haircut” (reduction in principal payment). However, all will have no or low interest. The proposals includes a full repayment of principal within five years without any interest; repayment within seven years with 2% interest payment; or repayment within at least eight years with an interest of close to the 1 year Libor. The final proposal needs to be approved by the Dubai government.
Looking at the CDS (Credit Default Swaps) chart below, investors seem to be relatively happy compared to a month ago (Dubai World to Restructure its Debts). The news on receiving the full principal payment decreased the CDS spreads by 200bps and tightened the yields of some Dubai Inc. papers. Although these are good news, it remains that forgoing interest payments will affect the future cash flows of banks.
“Receiving 100 per cent of the principal and zero per cent interest is better than taking a 30 to 40 per cent haircut. On this basis, the banks involved will not have to incur a loss other than the time value of money which is not insignificant but may be better than the alternative,” said Jawad Ali, the managing partner of the Middle East offices of the law firm of King and Spalding. (TheNational)If the 97 creditors do not agree on a deal, Dubai World may start the bankruptcy procedures.
(No Ratings Yet)
Loading ...Tags: CDS, dubai, Dubai Debt, Dubai Debt Crises, Dubai Debt Restructuring, Dubai World, Nakheel, UAE
I hope that a full list of creditors and their individual choices eventually emerges. This would provide a pretty good guide to what the attitude of each will be to further GCC (or MENA) risk. I suspect for example that HSBC and Stanchart may have been quietly adding to thier holdings on the secondary market at the low point as they are both long term committed to the GCC (and Dubai) markets. If they bought cheap enough, they will be able to average down total cost of holding.
Sorting out Dubai World bank debt is however only the first (and probably easiest) step in sorting out the Dubai financial mess. Something has to be done to un-jam the cats cradle of intercompany debts between developers, construction companies, suppliers, services suppliers etc etc. Until that is done, normal economic life cannot be resumed.
[Reply]
good news for dubai. but where will they get all this cash to pay back? 26B is a lot for a place w/ out major income stream…..
problem is, they still have other debts to pay eventually
they have to either liquidate or get another AbuDhabi bail out…which I think is pretty unlikely
[Reply]
[...] recently due to the current credit market turbulence. Economies with loads of debt such as Dubai and Greece, saw a surge in their CDS spreads, as more people are protecting themselves from the [...]
You know what is funny they can say bitch we want a 100,000.00 all day First of all to the caller you are a dumb ass just as soon as you touch the money they are going to be all over your bitch ass and you are telling us that it is more than one person involved so who is the Bitch LOL……LOL……LOL….
[Reply]
I’m really impressed together with your writing talents as neatly as with the layout on your weblog. Is that this a paid subject matter or did you customize it your self? Either way keep up the excellent quality writing, it is rare to see a nice blog like this one nowadays.. Executive London Escorts, 6, 5 Carlton Gardens, London, SW1Y 5AD, 028 7187 8593
[Reply]