Wednesday, Feb 15, 2012

--DIC's creditors, Dubai government still negotiating final terms

--DIC says it is financially sound and final debt deal is close

--Dubai government appears less willing to lend support to state-linked firms

By Nicolas Parasie and Asa Fitch

OF ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--The Dubai government has withdrawn a $150 million line of credit set up for Dubai International Capital, a move that is complicating the finalization of the state-linked private equity firm's debt restructuring deal, according to three people familiar with the matter.

The withdrawal is the latest example of an apparent pullback by the government from financial support for state-linked companies restructuring debt. In recent months, the government has rejected requests by banks for government guarantees in debt restructurings at Dubai Group and Drydocks World, according to bankers involved in those talks.

DIC agreed with creditors on the terms of a $2.4 billion debt restructuring late last year, but the pullback on the liquidity facility at the eleventh hour has forced DIC and its banks to again sit around the negotiating table to discuss the final terms, according to one source directly involved in the talks. DIC is a subsidiary of Dubai Holding, the personal investment vehicle of Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai.

While the withdrawal is not expected to delay a deal indefinitely, another person involved in the talks said the question of the $150 million facility "is one of the issues they are still talking about."

A spokesperson for DIC said the company was "close" to sealing the deal and was financially sound.

"DIC is close to concluding final amendments to its agreed financial restructuring which takes account of DIC's strong cash position following a series of successful asset sales," the spokesperson said.

The $150 million liquidity facility was provided by the Dubai Financial Support Fund, an entity set up in 2009 to distribute aid to the emirate's troubled companies, according to a third person familiar with the matter. The DFSF was funded with $20 billion in financing from the United Arab Emirates central bank, the Abu Dhabi government and a pair of Abu Dhabi banks.

LIQUIDITY

A person close to DIC, which has been gradually divesting its stakes in regional companies as it restructures, said the firm was "sitting on a record amount of cash and liquidity" and "doesn't need additional funding at this point." DIC had paid down significant debt last year and will pay down more this year, the person said.

DIC last October said it sold a stake in Ishraq Dubai at a profit for $130 million to the Dubai-based Almulla Group. Ishraq owns four hotels in Dubai. The company also sold a 45% stake in the U.A.E.'s KEF Holdings last March for $178 million to Tyco International, a multinational manufacturing company, also at a profit.

Dubai's apparent reluctance to guarantee debt being restructured at state-linked companies may stem partly from a desire to preserve the government's own ability to borrow. Jean-Michel Saliba, an economist at Bank of America Merrill Lynch, said in a recent note that the Dubai government's refusal to support Dubai Group in its $10 billion debt restructuring highlighted a focus on helping government-linked companies that are deemed strategic rather than giving blanket guarantees. But it also supported the emirate's sovereign creditworthiness, he said, by decreasing its contingent liabilities.

"While decreasing contingent liabilities is positive for sovereign creditworthiness and [credit default swaps], the ultimate impact may be trumped by broader, more laborious Dubai Inc restructurings and sentiment," Saliba said in his note.

In addition to Dubai Group, which is part of Dubai Holding, Drydocks World, a government-owned shipyard company, is in talks to restructure $2.2 billion of debt. The Dubai government also last year rejected a request from Drydocks World's bank creditors for a sovereign backstop.

-By Asa Fitch and Nicolas Parasie, Dow Jones Newswires; +9714 446-1681; nicolas.parasie@dowjones.com

Copyright (c) 2011 Dow Jones & Co.

(END) Dow Jones Newswires

15-02-12 0757GMT