Dubai World’s approval from creditors to alter the terms on US$24.9 billion of debt is “credit positive” for banks in the United Arab Emirates, according to Moody’s Investors Service.
The debt restructuring accord “puts an end to the uncertainty that the threat of a liquidation had created,” Dubai-based analyst John Tofarides wrote in an e-mailed report yesterday.
“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,” Tofarides said.
The state-owned holding company is “well positioned to close the restructuring in the coming weeks” after agreeing with about 99 percent of creditors, Dubai World said on Sept. 10.
The agreement also “marks the support of the creditors to the separation,” of real estate developer Nakheel PJSC from Dubai World, said Sheikh Ahmad Bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee.
Dubai World and its main creditor banks agreed in May to restructure US$14.4 billion of loans and US$8.9 billion of government liabilities.
The company said banks would be paid US$4.4 billion in five years and another US$10 billion over eight years at below-market interest rates supported by assets sales.
“The ability of Dubai World to make principal repayments in five years and eight years appears to largely depend on expected revenues from future asset sales,” Tofarides wrote. “A refinancing risk could occur in five years and eight years, depending on the level of Dubai World’s future revenues and assuming no additional external support.”