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Dubai Restructurings Uncloud The Waters

April 5, 2010Article by Ray Withers

We all know what the news is on the Dubai property market now, well, those of us with even a passing interest in the Dubai property market do for certain. In recent weeks we have seen the long awaited restructuring plan for Dubai World’s debts finally submitted to the panel of its creditors.

The government has basically stepped in to pull the company out of the proverbial. In the first instance the government has converted the $8.9 billion owed to it by Dubai World into equity, in other words writing the debt off.

And in the second instance the government is giving $1.5 billion directly to Dubai World, from the Dubai Financial Support Fund. The money is to be used for running costs and to make interest repayments.

As for the other $17 billion (approx.) owed to outside creditors, the government says that Dubai World will be making 100% principal repayments, by opening 2 new lines of credit of 3 and 5 year maturity. Many analysts have pointed out the optimism of a recovery within 3 years, which, if it doesn’t come will likely leave Dubai World to look at another restructuring plan in 3 years time. How many restructurings will creditors allow, especially if their prospects are substantially improved in 3 years time?

The announced restructuring also highlighted the number of successful assets still held by Dubai World, and said that it would be focussing on maximising these assets and returning to positive growth.

Dubai’s other indebted developer Nakheel also revealed its restructuring plan at the tail end of last month, and it also benefited from a large swathe of government assistance. Nakheel’s situation is far less murky though, because it does not owe anywhere near the same amount of money to the government or to outside creditors.

The government was able to simply recapitalise Nakheel with an $8 billion cash-injection, and it also converted the $1.5 billion (approx.) owed to it by Nakheel into equity. The $8 billion will be used to put the company back onto an even keel, to make principal repayments, and to pay interest payments.

Both restructuring plans now must be approved by their respective creditors. Given the amount of money involved, the restructuring deal is unlikely to be rejected by the creditors’ commission. It is possible that it will not be accepted in its entirety either though, the creditors may impose some further stipulations on the deal — time will tell.

If they are accepted it may well prove to be the turning point in the Dubai property market’s future, because the debts involved are currently like a big dark cloud hanging over the market; a constant reminder of how quickly and how badly it all went wrong.


Ray Withers

Ray has over 17 years’ experience in the international property market and bought his own first international property investment back in 2002. Aside from running Property Frontiers, Ray has been involved in residential, hotel, student and commercial property investment and development in both the UK and overseas and co-wrote "Where to Buy Property Abroad - An Investor's Guide". As Founder and Trustee of the Frontiers Foundation, Ray is directly involved with many of its projects to ensure they have a direct and tangible impact in individual communities across the globe. He is passionate about property, travelling, scouting out new opportunities and finding time to spend with his young family.
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