Dubai World deal 'to restore confidence'

Dubai World's debt restructuring agreement with its main creditors will help restore confidence in Dubai's financial industry, international bank and rating agencies said yesterday.

Dubai World, the state-owned holding company, said on Thursday it reached an agreement with its main creditor group to restructure $23.5 billion (Dh86.3bn) of liabilities as it seeks to resolve a debt crisis that roiled global markets last year.

"Since an agreement of more than two-thirds of total creditors could finalise this restructuring, we believe that there is high likelihood that an agreement will be finally reached," Moody's Investors Service said in a report yesterday.

"Acceptance by bank lenders would go a long way towards confirming lower-than-feared loan losses for the banks involved and consequently for restoring confidence in Dubai's financial sector, both credit-positive developments."

Dubai World said last week it will pay $4.4bn of the loans in five years and another $10bn over eight years.

Dubai Government, which pledged $1.5bn in March for the restructuring, will convert $8.9bn of its loans to Dubai World into equity. Ivor Dunbar, co-head of global capital markets at Deutsche Bank, said Dubai World deal removes a key hurdle for international investors eyeing investments in the region.

"It [the Dubai World debt deal] removes a major question mark for international investors," Dunbar told reporters on the sidelines of an economic conference.

In addition, Dunbar said he wasn't "unduly worried" about Dubai Holding.

"Every major company has to go through this," he said. Three companies within Dubai Holding had engaged advisers ahead of a potential plan to restructure billions in debt, media report said earlier this month. The Deutsche Bank executive added the Dubai World debt deal, in particular the longer maturities, "will erode some capital [of the local banks] but that should already be provisioned for".

Standard & Poor's yesterday suggested that Dubai should consult the UAE authorities before its government-owned companies issue debt.

The emirate plans to centralise the debt strategy of its state-run companies, Sheikh Ahmed bin Saeed Al Maktoum, Chairman of the Supreme Fiscal Committee, said yesterday. Debt management offices will be set up at both, a federal and Dubai level, he said.

"There needs to be co-ordination taking place at a federal level," said Jan Plantagie, Dubai-based regional head of S&P in the Middle East. "Recent experience shows that one market impacts the other."

In future, individual emirates will need to take account of national debt levels and ensure they don't compete with one another in tapping credit markets, said Plantagie.

While the creditor accord is a step forward, it may not ease access to financing for Dubai's firms, said Plantagie.

Follow Emirates 24|7 on Google News.