Dubai offers $9.5B in new aid to struggling firm

[March 25, 2010]  DUBAI, United Arab Emirates (AP) -- Dubai's government said Thursday it will pump up to $9.5 billion into its chief conglomerate Dubai World and a key subsidiary as part of a long-awaited restructuring plan to rescue it from crippling debt.

The proposal, which still needs approval from creditors, comes after months of talks following Dubai World's bombshell announcement in November that is would seek delays in repaying $26 billion in debt. The conglomerate's woes have symbolized Dubai's plummet from boom years to lean times as the global downturn ravaged the city-state's ambitious growth plans.

The chairman of Dubai's supreme fiscal committee said in a statement that the support aims to ensure Dubai World and property development arm Nakheel are "key contributors to the strong economic future" of the city-state. The plan offers creditors full repayment on the principal of their outstanding loans over a five to eight year period by issuing new debt. It was not clear how much interest, if any, is being offered.

Sheik Ahmed bin Saeed Al Maktoum, who is also the uncle of Dubai's ruler, says the new funding includes $5.7 billion of the money remaining from a bailout by neighboring Abu Dhabi and "internal Dubai Government resources."

Investors in Dubai welcomed the news. Shares on the city-state's main stock exchange, the Dubai Financial Market, shot up 4.5 percent in early trading. Shares of DP World, Dubai World's publicly traded port operator, rallied nearly 4 percent to trade at 50 cents apiece on the Nasdaq Dubai, another exchange in the emirate. Other Gulf markets also posted gains, reflecting investors' relief over concerns Dubai's debt woes could harm its neighbors.

"This is a very positive announcement and the markets are reacting accordingly," said Mohammed Shakeel, an Abu Dhabi-based independent economist. "Dubai is essentially saying that it is through the worst."

Dubai has received $20 billion in emergency funds from its oil-rich neighbor Abu Dhabi, which is also the capital of the United Arab Emirates, a seven-state federation of which Dubai is part. Abu Dhabi holds nearly all the UAE's oil wealth.

The plan calls for the restructuring of $23.5 billion of Dubai World's total debt, including $14.2 billion owed to creditors other than the government.

As part of that deal, the government plans to recapitalize the conglomerate by offering as equity an $8.9 billion claim in the company, while also pumping in $1.5 billion in new funds, according to a Dubai government statement.

Nakheel plans to present its own offer Thursday. That deal will call on banks to restructure their debt "at commercial rates," while other creditors still owed repayment "will be offered a significant cash payment shortly and a tradable security," according to the statement.

Aidan Birkett, Dubai World's Chief Restructuring Officer told reporters Thursday that the indebted company hopes for a "consensual agreement" from all the lenders, although he expects negations with creditors to take months.

Birkett said the priority of the plan was to address Nakheel's problems, including paying contractors -- some of whom have not been paid up to a year. The company also plans to restart some development projects to reinsure investors who have taken a loss when Dubai real estate bubble burst in 2008.

"If we fix Nakheel then we can go a long way to fix real estate issues in Dubai," Birkett said.

Sheik Ahmed, too, made clear that Nakheel, whose future has been in doubt, remained a core part of Dubai's economy.

"The Nakheel business plan allows work to continue as soon as possible and puts Nakheel on a sound footing. The government, as shareholder, will work closely with Nakheel so that any future projects are carefully planned and evaluated," he said in a statement.

Dubai's government rattled global markets in late November when it unexpectedly announced plans to restructure Dubai World and asked creditors to delay repayments on some $26 billion worth of debt until at least May of this year.

The focus of the restructuring centers on the company's Nakheel and Limitless real estate divisions. Nakheel is the developer behind Dubai's Palm Jumeirah and other manmade islands, the majority of which sit empty.

Dubai World has tried to protect some of its more prominent internationally focused assets, including profitable global port operator DP World, by exempting them from the restructuring.

The conglomerate's talks with creditors, which include major British banks such as HSBC and Standard Chartered, as well as numerous local lenders, have been carried out behind closed doors. Dubai officials have said little about the restructuring process or the state's backing for its many government-linked companies.

The crisis, like that in Greece, has raised fears that the world's financial system remains exposed to large amounts of debt that will not be repaid in full. It also highlighted a lack of transparency within the booming oil-rich Gulf, and has forced creditors to rethink their assumptions about the region's overall financial health.

Before November, lenders had assumed that the more than $80 billion owed by Dubai's state-run companies was implicitly backed by the government. Dubai's refusal to stand unequivocally behind those loans made clear there was no such guarantee.

Dubai, which has little oil wealth of its own, rapidly grew into a bustling Middle East commercial and logistics hub packed with soaring skyscrapers, including the world's tallest, on the back of a building boom fueled by cheap credit. Many of the city-state's biggest companies are run by or have ties to the government and its hereditary ruler.

[Associated Press; By BARBARA SURK]

AP Business Writer Adam Schreck contributed reporting from Baghdad and Brian Murphy in Dubai.

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