Dubai World To Repay Debt
Friday, March 19, 2010
Investor confidence in debt-ridden Dubai will be bolstered by an announcement
from Chairman of the Dubai Supreme Fiscal Committee, Ahmed Bin Saeed Al Maktoum
that Dubai World will offer a ‘fair and acceptable plan’ to its
creditors; likely to be full repayment, as part of the restructuring of its
USD26bn debt. It is hoped that the move will allay concerns that Dubai would lose face with lenders by defaulting
on part of its debt and asking creditors to take a ‘haircut’ on
any agreed settlement.
“We believe that whatever we will put on the table should be a very fair
deal for everybody, and we as a government will always support it,” Al
Maktoum was quoted by Bloomberg as saying. “At the end of the day, we need
everybody; they need us also," he explained. "We have projects that will be started in the near
future for the long-term.”
Banking sources told local broadcaster, Al Arabiya that Dubai World would likely
offer to creditors full repayment of its USD26bn debt over a period of seven
years, with interest linked to London’s Inter-bank lending rate, the LIBOR
rate.
It has been no secret that Dubai's finances are under pressure following the Dubai real estate bubble. Confidence among international investors was shaken
after Dubai World, the city-state's real estate vehicle, announced a debt moratorium
for at least six months in November last year. At the time, the total debt of
Dubai World amounted to USD59bn, and the Emirate was force to seek a last minute USD10bn loan from
Abu Dhabi to avert defaulting on an Islamic bond linked to developer Nakheel.
According to a report from real estate advisory Firm Jones Lang LaSalle in
2010, Dubai's once-booming commercial property market saw prices fall significantly,
in the first half of last year by around 45% in Q1 of that year and a further 25% decline in Q2. A further decline in average rents was deemed likely, due to increasing levels
of new supply.
By the end of 2011, 25 million square feet of additional office
space is forecast to enter the market which will increase the vacancy rate and
place further downward pressure on average rental rates. The existence of such a concentration of empty and uncompleted real estate
in one of the world's key investment locations is expected to have a dampening
effect on property values for a long time to come. |
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