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Updated Friday, November 27, 2009 11:09 am TWN, By Matt Smith and Enjy Kiwan, Reuters

Dubai seeks debt delay for flagship firms

DUBAI -- Dubai will ask creditors of two of its flagship firms for a standstill on debt worth billions of dollars as a first step towards restructuring Dubai World, the conglomerate which spearheaded the emirate's breakneck growth.

The government's announcement on Wednesday, which said consultants Deloitte had been appointed to help with the restructuring, sent the cost of insuring Dubai's debt against default soaring and bond prices tumbling.

State-run Dubai World has US$59 billion of liabilities, its subsidiary Nakheel said in August, a large proportion of Dubai's total debt of US$80 billion.

Analysts expect financial support from deep-pocketed Abu Dhabi, a neighboring member of the United Arab Emirates, to keep Dubai afloat. But Dubai will likely have to abandon a flamboyant economic model that focused on heavy real estate investment and inflows of foreign capital.

“It's shocking because for the past few months the news coming out has given investors comfort that Dubai would most probably be able to meet its debt obligations, and most analysts were of the view that Nakheel's commitments would be met,” said Shakeel Sarwar, head of asset management at SICO Investment Bank.

“Abu Dhabi has been supportive of Dubai, but it appears this support is not enough for Dubai to meet its obligations on time.”

The government said in a statement: “Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least 30 May 2010.”

Nakheel, developer of iconic palm-shaped residential islands owned by Dubai World, has a US$3.5 billion Islamic bond maturing on Dec. 14 and debt worth 3.6 billion dirhams (US$980 million) due on May 13, 2010. Limitless, another Dubai World developer, has a US$1.2 billion bond maturing next March 31.

The announcement appeared to be timed to minimize its impact on markets; it came after the stock market shut and just before the eve of the long Eid al-Ad holiday, which will close many firms and government offices in Dubai and the Gulf until Dec. 6.

But the cost of insuring Dubai government debt against default with five-year credit default swaps soared, jumping over 100 basis points to 420.6 from a close of 318 a day earlier. Nakheel's Islamic bond prices fell more than 20 points to 87.

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	The Burj Dubai, the world's tallest skyscraper, towers over buildings under construction in the Business Bay area in Dubai, United Arab Emirates, on Tuesday, Nov. 24. Dubai, whose government and state-owned companies borrowed US$80 billion to fund an economic boom, raised US$5 billion by selling bonds after the credit crisis battered its property and finance industries. (Bloomberg) Enlarge Photo


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