Dubai World creditors to get multiple options

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Bankers in London and the Gulf are divided over how Dubai should restructure the $26 billion debt pile dogging its flagship holding company, leading the emirate to consider parallel offers in an effort to please all, the sources said.

Markets entered a holding pattern ahead of any announcement, with Dubai’s main stock index easing slightly after climbing 4.9 percent in the past three days. The price of insuring against default on five-year Dubai debt fell five basis points to 483, according to CMA DataVision, while the Nakheel bond of 2011 edged $0.50 higher to $61.50.

“Market sentiment depends on what happens with Dubai World, and there’s still a lot of speculation in the market,” said Samer al-Jaouni, General Manager of Middle East Financial Brokerage Co.

“The market is not moving according to fundamentals or technicals, but rumors about Dubai World.”

There is widespread expectation among creditors that Abu Dhabi will ride to the rescue, as it did in December when it helped Dubai avert an embarrassing default on an Islamic bond linked to property developer Nakheel.

The final proposal, which is expected in the coming days or weeks, may include more than two tranches in an effort to meet the needs of the 97 lenders known to have extended credit to Dubai World in one form or another.

Local banks with little lending power may want whatever they can get from Dubai World fast, while international lenders with big balance sheets can afford to wait for full repayment.

Two of the restructuring options include repayment over three to five years with the principal discounted, and repayment over seven to nine years with no discount. How much of a “haircut” is included on the shorter-term deal depends on how much money Abu Dhabi stumps up.

No real decision on the exact shape of the deal has taken place yet, said one London source.

Abu Dhabi is the capital of the seven-member UAE federation – the world’s third-largest oil exporter – and by far the richest. But it has kept noticeably mum about its plans for Dubai, hard hit by the global financial crisis and burdened by an estimated $101 billion in total debt.

Last year’s $10 billion bailout – which included $5 billion from two Abu Dhabi-linked banks and came through a Dubai bond issue – is conditional on Dubai World reaching a satisfactory deal with creditors. About $5 billion of those funds have yet to be released.

Dubai exports little oil, but raised its profile internationally with eye-catching construction projects such as the world’s tallest building and palm-shaped islands in the sea.

The fallout from Dubai’s debt crisis is being felt in Abu Dhabi, with Moody’s downgrading seven government-related entities late last week as they did not have an explicit, formal guarantee of government backing.

In a sign of how much Dubai’s own financial power has been curtailed, its state-owned utility Dubai Electricity and Water Authority (DEWA) said on Wednesday its planned $1.5 billion bond would carry no government guarantee.

DEWA’s plan to issue bonds marks Dubai’s first dip into international capital markets since its debt crisis last year. DEWA had postponed the issue after Dubai World’s November announcement.