Dubai World, the state-owned holding company grappling with $40 billion of debt, may be able to sell bonds to repay loans, including a $3.5 billion Islamic bond due at year-end, two bankers familiar with the group’s plans said.

Some of the money needed to settle the Islamic bond, or sukuk, of Dubai
World’s real-estate unit Nakheel PJSC may be raised from a bond sale
and the rest from local lenders, said the bankers, who declined to be
identified because nothing has been decided yet. Some of Nakheel’s
Middle Eastern bondholders may accept an offer to extend the bond’s
maturity, they said.

“Market sentiment has improved a lot,” said Abdul Kadir Hussain, chief
executive officer of Mashreq Capital (DIFC) Ltd., a Dubai-based fund
management firm. Dubai will still “not only have to be pretty
transparent about how the sukuk will be refinanced, but also what their
strategy is to tackle the emirate’s entire debt situation,” he said.

The cost of protecting against a default on Dubai’s bonds for five
years has fallen 70 percent from a two-year high in February, ranking
it between Lithuania and Lebanon, data compiled by Bloomberg show. A
successful repayment of the Islamic bond, on which investors were
concerned Nakheel may default after a slump in property prices, will
make it easier for banks to reschedule $12 billion of Dubai World’s
debt that mature during the next three years, the bankers said.

$20 Billion Rescue Fund

The decision to sell bonds will hinge in part on how much money Nakheel
gets from a $20 billion rescue fund the government is raising, the
bankers said. Both the fund and Dubai World’s creditors are seeking
more disclosure on the company’s business plan, cash flow projections
and its strategy to repay debt, they said. Creditors haven’t yet
reached consensus on giving Dubai World more time to repay the loans,
they added.

Dubai will probably complete raising the second $10 billion for the
support fund to help state-owned companies through the credit crisis by
the end of next month, Mohammed Alabbar, a member of Dubai’s Executive
Council said Oct. 9.

A spokeswoman for Dubai World declined to comment.

Credit-default swaps tied to Dubai’s bonds, or the cost to protect
against default, have fallen to 288 basis points from 976 basis points
on Feb. 17, according to CMA DataVision prices.

“The government of Dubai is likely to be able to generate some demand
from institutional investors in this region and internationally,” said
Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi
PJSC. “The key will be how much demand exists and at what price.”

Investor Roadshow

Dubai World’s advisers, AlixPartners LLP, Deutsche Bank AG and NM
Rothschild & Sons Ltd. have drawn up alternative plans to repay the
sukuk depending on whether Dubai’s fund agrees to provide Nakheel with
between $1 billion and $2 billion this year, the bankers said.

The Government of Dubai will hold meetings with fixed income and
Islamic investors in Asia, the U.A.E. and Europe starting Oct. 22,
according to a banker involved in the transaction. The government is
canvassing investor interest in the Dubai Civil Aviation Authority’s
plan to sell bonds and pay down $1 billion of debt maturing next month,
two bankers familiar with the transaction said Oct. 18.

Dubai and its state-related companies borrowed $80 billion to help
transform the emirate into a financial services and tourist hub. The
seizure of global credit markets sparked concern the emirate will be
unable to repay some of its loans.

DP World, Nakheel

Dubai World said Oct. 15 it expects to save more than $800 million in
three years after completing a reorganization and cutting 12,000 jobs.
The Dubai government-owned company controls DP World Ltd., the world’s
fourth-biggest port operator, developer Nakheel PJSC, which is building
palm-tree shaped islands off the emirate’s coast, as well as Economic
Zones World, an operator of business parks like Jebel Ali Free Zone.

Dubai World had $59 billion in liabilities at the end of last year and
assets of $100 billion, Nakheel told Nasdaq Dubai Aug. 20. Some $18
billion of Dubai World’s debt is with companies such as DP World which
have enough cashflow to service their debt, two bankers said. The
remaining $22 billion is the concern, they said.

“We have the right organization size now for the current market,” Jamal
Majid Bin Thaniah, Dubai World’s chief executive officer, said in an
interview Oct. 15. The company has no “intentions at this point in time
to sell businesses within Dubai World.”

Dubai World and its advisers are negotiating with its lenders, which
number more than 70 and include Abu Dhabi Commercial Bank PJSC and
Emirates NBD PJSC, its two biggest creditors, a person familiar with
the situation said last week. Other lenders to Dubai World include
Credit Suisse Group AG, HSBC Holdings PLC, Barclays PLC, Lloyds Banking
Group PLC and Royal Bank of Scotland Group PLC, the person said.

Representatives of Emirates NBD, HSBC, Credit Suisse, RBS and Lloyds
declined to comment. Representatives for Abu Dhabi Commercial Bank and
Barclays weren’t available to comment.

Source: Bloomberg

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