DUBAI, August 19 2008 - Laws and regulations relating to creditors' rights in the event of a debtor insolvency remain untested in the United Arab Emirates, according to a new assessment published by Standard & Poor's, leaving the insolvency process in the event of default unpredictable at a time when global default levels are expected to rise significantly.
       
"While the creditworthiness of borrowers has always been of paramount concern to creditors, recent developments in the debt markets, including the deteriorating credit of some major corporate borrowers, the recent credit crunch and the implementation of Basel II guidelines, have put a spotlight on creditors' prospects for recovery of principal and interest after a borrower default," said Agnes De Petigny, Managing Director, Standard & Poor's Ratings Services. "From the creditors' perspective, it is no longer only a question of whether a particular borrower will default, but also whether - and to what extent - they will be repaid principal and interest after a default, and how long it will take."
       
The report, titled "Debt Recovery For Creditors And The Law Of Insolvency In The UAE," was published today in connection with Standard & Poor's global assignment of recovery and issue ratings. It reviews the distinctive characteristics of the insolvency regime in the United Arab Emirates from both a secured and unsecured creditor's perspective, and assesses how these characteristics may affect post-default recovery prospects. The report is part of an ongoing analysis of more than 30 national insolvency regimes in Europe, Asia, North America, and Latin America by Standard & Poor's Ratings Services.
       
"While it would be an overstatement to claim that the UAE is an unfriendly jurisdiction for secured creditors, the laws and regulations addressing creditors' rights -- and the effect of a debtor's insolvency on those rights -- are not as evolved as those in many more developed jurisdictions," said James Penrose, Managing Director and Senior Counsel, Standard & Poor's Ratings Services. "In addition, as of the time of writing there has never been a major corporate insolvency in the UAE, the local laws and regulations relating to creditors' rights in the event of a debtor insolvency remain substantially untested."
       
As part of the study, Standard & Poor's has classified the insolvency regime of the United Arab Emirates in Group B of its global classification framework. This framework positions jurisdictions that Standard & Poor's believes offer the greatest level of creditor protection in the highest group (Group A), and those that provide only limited safeguards for creditors in the lowest group (Group C).
       
Compared with jurisdictions in more creditor-friendly regimes, creditors in Group B countries have less control over insolvency proceedings, as debtors or other constituencies benefit from greater influence or control in the event of financial distress. In addition, the overall proceedings can be lengthy--surpassing two years--and somewhat unpredictable for both secured and unsecured creditors. As a result, recoveries in these jurisdictions may be delayed or may not be fully reflective of the distributions that would be expected based on a creditor's relative position in the capital structure.
       
In light of these issues, Standard & Poor's recovery ratings in Group B jurisdictions are generally capped at '2'. This implies recovery of 70%-90% of principal and accrued but unpaid interest at the time of default. Issue-level ratings will not be more than one notch above the corporate credit rating--and then only in limited cases with strong collateral coverage where expected recoveries would be firmly within the 90%-100% range absent our jurisdictional related concerns.
       
-Ends-
       
About Standard & Poor's in the Gulf Cooperation Council
Standard & Poor's is the leading provider of financial market intelligence to customers in the Gulf's credit risk management, wealth management, and data and information markets. Since entering the region in the early 1990's, Standard & Poor's has become the largest provider of credit ratings in the G.C.C, rating more than 100 issuers. In equity markets, Shariah-compliant versions of Standard & Poor's global and regional equity market indices - S&P 500, S&P Europe 350, S&P Japan 500 and S&P/IFCI GCC - have created new opportunities for Islamic investors to benchmark their international investments and for asset managers to create new investment products serving the Islamic community. Standard & Poor's Fund Services launched a qualitative fund management rating service for regional asset managers in 2007. For further details on Standard & Poor's regional capabilities please visit www.gcc.standardandpoors.com

Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com.

Press Office Contacts:
London Media Hotline: +44 20 7176 3605
Paris: +33 1 44 20 6740
Frankfurt: +49 69 33999 225
Milan: +39 02 72 111 245
Moscow: +7 495 783 4003
Stockholm: +46 8 440 5914

Contacts:
Agnes De Petigny, Paris
James Penrose, London
       
Media contact:
Matthew McAdam,
Communications
Tel: +44 20-7176-3541
Matthew_McAdam@standardandpoors.com

© Press Release 2008

Share this on:        Delicious         Digg         reddit         Facebook         StumbleUpon

 

 

Community Comments (0) - Comment on this article

The opinions of the authors expressed herein do not necessarily state or reflect Zawya. Read our Comment Policy.

 

 

 

close x

Loading ...

 

close x

Loading ...