Dubai Plan May Be âNegativeâ for Banks, JPMorgan Says
March 28 (Bloomberg) -- Dubai Worldâs debt-restructuring plan may be ânegativeâ for its bank creditors because repayments will be funded by asset sales and dividends, JPMorgan Chase & Co. said.
Dubai World, a state-owned holding company, is asking creditors to wait as long as eight years before they receive all their money back as part of its $23.5 billion debt reorganization announced last week.
âThere is no mention of a government repayment guarantee for Dubai Worldâs bank creditors,â Zafar Nazim, a London-based analyst at the bank, wrote in a report dated March 25. âThe government intends to inject only $1.5 billion of cash into Dubai World to support its creditors and working capital commitments. In essence, Dubai Worldâs creditors will be relying upon assets sales and dividends.â
Creditors to Dubai Worldâs real-estate arm, Nakheel PJSC, will be asked to restructure their loans at commercial rates, and trade creditors will be offered a cash payment and a tradable security. The companyâs Islamic bonds, or sukuk, due in 2010 and 2011 will be paid on maturity if the proposal receives enough support from creditors.
Dubaiâs benchmark index surged 4.3 percent on March 25, the most since Dec. 14, after the plan was announced, while Nakheelâs $750 million Islamic bond maturing in January gained 48 percent to 96 cents on the dollar, according to prices on Bloomberg.
âWe would be cautious on indiscriminately extending the potential positive outcome for Nakheel bonds to other Dubai Inc. entities,â the report said. âThe government has not explicitly ruled out restructuring other Dubai Inc. entities, and continues to distinguish between sovereign and non-sovereign obligations.â
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