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May 30, 2017

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Dubai World debt best settled in talks: DLA

Dubai World's possible default on US$26 billion of debt would be best settled through "commercial negotiations" rather than in court as insolvency laws in the United Arab Emirates are not as developed as in the west, a partner at law firm DLA Piper Middle East LLP said.

Creditors and borrowers in the U.A.E. "do not have access to insolvency mechanisms or tools, such as receivership, administration or Chapter 11 protection to address potential default situations," Tony Holland, a partner and regional head of finance at DLP Piper, said in a phone interview from Dubai today. "Commercial negotiation is seen as the preferred approach, rather than recourse to the courts."

Dubai World, a state-owned holding company whose property unit is building emirate's landmark palm tree-shaped islands, said on Nov. 25 it would seek a "standstill" agreement with creditors and an extension of all loan maturities until at least May 30, 2010. That news sparked a 26 percent decline in Dubai's benchmark share index, pulled down bond prices and led to the downgrade of credit ratings for several Dubai companies.

Bondholders of Dubai World property unit Nakheel PJSC have formed a creditor group that represents more than 25 percent of the US$3.52 billion of its debt due Dec. 14, according to Ashurst LLC, which has been appointed legal adviser. The group is in the "process of considering its options," Jo Shepherd, head of public relations at Ashurst in London, said on Nov. 30.

Business Plan

After a standstill is agreed upon, "a business plan for the short, medium and long term is developed and, if agreed, a more formal, longer term standstill agreement is negotiated," Holland said. "The business plan may involve asset sales."

Global Investment House KSCC, the Kuwait-based investment bank that defaulted on loan repayments in December 2008, said on Dec. 10 it signed an agreement with its creditors to restructure US$1.73 billion of debt. Global entered into new three-year amortizing facilities with each of its 53 lending banks, thus ending the "events of default," it said in a statement.

Dubai World said on Dec. 1 its restructuring would be carried out over several phases and include an assessment of deleveraging options, including assets sales.

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