Are Dubai’s debt storm clouds gathering again?
Action by a state-owned company and the fall in oil prices has placed Dubai’s $140bn debt load under scrutiny.
Dubai’s debt burden is once more the focus of attention after the state-owned investment firm Dubai World invoked legislation to push through a deal to reschedule $14.6bn in debt. It is the second restructuring in four years through Decree 57, a provision allowing Dubai World to seek ratification at a special tribunal after garnering the support of more than 66.67 percent of creditors by value, the trigger point for a deal.
The move, seen by some as controversial, permits the company to impose a deal on creditors in a process known as “cramdown”. Analysts say the development may undermine confidence, but Doug Bitcon, head of fixed income funds at Rasmala Investment Bank, believes there was little choice.
“The composition of creditors has changed over time,” Bitcon told Al Jazeera. “Some may have agendas which are not conducive to a rapid conclusion of the restructuring process. It is not surprising [Dubai World] enacted Decree 57.”
Under the terms, Dubai World will make an early repayment of $2.92bn due in September and extend payment of debt that would become due in 2018 to 2022. In January, the company said it had reached an agreement with a “substantial majority” and “made a voluntary arrangement notification under Decree 57” that included increased pricing and additional collateral.
The Dubai World tribunal was created to administer the first restructuring under the jurisdiction of a Dubai International Financial Centre court. Ahmed Shaheen, the associate director of fixed income sales and trading at Exotix Partners, was critical of the deal.