In a move that could bolster investor confidence in the sovereign debt market, Dubai’s government said on Thursday that it would commit $9.5 billion to redeem at par the bonds of Dubai World’s Nakheel real estate investment unit, if its plan of restructuring is approved by banks.
Dubai World, the city-state’s investment conglomerate, which investment holdings in transportation, retail, financial services, and real estate sectors around the world, is attempting to restructure $23.5 billion of debt.
“This proposal represents the best possible solution for all stakeholders,” Chief Restructuring Officer Aidan Birkett said in a statement. “It follows extensive discussions with our creditors, a thorough review of Dubai World’s businesses, and significant financial support from the government. It offers the company a strong future and the opportunity to maximize the value of its assets over the medium to long term.”
In the restructuring proposal, Dubai’s government would convert $8.9 billion of debt into equity, and commit $1.5 billion of cash to fund Dubai World’s working capital as well as upcoming interest commitments, the company said on Thursday. In addition, it would issue two tranches of new debt maturing in five to eight years in the capital restructuring.
On Nov. 25, 2009, Dubai World rattled the global fixed-income market when it announced that it must delay redemption of its debt until at least May 2010. At the time, the move drove down prices of sovereign debt, and increased greatly the cost of protection to insure the debt of sovereign entities. Abu Dhabi, sister city of Dubai in the United Arab Emirates, in December 2009 promised up to $10 billion in loan to help Dubai.
“There has been some uncertainty about the atmosphere that the Dubai World situation has created and so I think this can go a long way to taking that off the agenda as a discussion item,” Nicholas Maclean, managing director of CB Richard Ellis said in an interview with Arabian Business. “For investors going forward, I think it’s good news,” he continued.
In the mid-2000s, Dubai experienced hyper growth in its real estate and tourism industries, in an attempt by its government to diversify from energy holdings. Several megaprojects such as Palm Islands, Dubai Marina, the Burj Khalifa, and the Burj Al-Arab hotel have catapulted Dubai to the status of being the financial and tourism hub of the Middle East.
Dubai’s real estate industry was hurt by the global financial crisis over the last two years, with some projects experiencing lack of financing, and overall property values declining by up to 50 percent, according to reports.
Dubai World, the city-state’s investment conglomerate, which investment holdings in transportation, retail, financial services, and real estate sectors around the world, is attempting to restructure $23.5 billion of debt.
“This proposal represents the best possible solution for all stakeholders,” Chief Restructuring Officer Aidan Birkett said in a statement. “It follows extensive discussions with our creditors, a thorough review of Dubai World’s businesses, and significant financial support from the government. It offers the company a strong future and the opportunity to maximize the value of its assets over the medium to long term.”
In the restructuring proposal, Dubai’s government would convert $8.9 billion of debt into equity, and commit $1.5 billion of cash to fund Dubai World’s working capital as well as upcoming interest commitments, the company said on Thursday. In addition, it would issue two tranches of new debt maturing in five to eight years in the capital restructuring.
On Nov. 25, 2009, Dubai World rattled the global fixed-income market when it announced that it must delay redemption of its debt until at least May 2010. At the time, the move drove down prices of sovereign debt, and increased greatly the cost of protection to insure the debt of sovereign entities. Abu Dhabi, sister city of Dubai in the United Arab Emirates, in December 2009 promised up to $10 billion in loan to help Dubai.
‘Good News’ for Investors
Nakheel’s Islamic bonds rose in Thursday trading in Dubai following the announcement. Analysts expect the bonds to be trading close to par after investors digest the positive news. However, optimism is tamed by the fact that creditors must first approve the measure.“There has been some uncertainty about the atmosphere that the Dubai World situation has created and so I think this can go a long way to taking that off the agenda as a discussion item,” Nicholas Maclean, managing director of CB Richard Ellis said in an interview with Arabian Business. “For investors going forward, I think it’s good news,” he continued.
In the mid-2000s, Dubai experienced hyper growth in its real estate and tourism industries, in an attempt by its government to diversify from energy holdings. Several megaprojects such as Palm Islands, Dubai Marina, the Burj Khalifa, and the Burj Al-Arab hotel have catapulted Dubai to the status of being the financial and tourism hub of the Middle East.
Dubai’s real estate industry was hurt by the global financial crisis over the last two years, with some projects experiencing lack of financing, and overall property values declining by up to 50 percent, according to reports.
