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Dubai World mints deal on $24bn debts

SMALL lenders to Dubai World could scupper the conglomerate’s plan to restructure its $23.5bn (£16bn) debt pile, which was provisionally signed off by its core creditors yesterday.

A committee of seven key banks, including London-listed HSBC, Royal Bank of Scotland and Standard Chartered, reached an agreement with the Dubai government-owned group “in principle” to defer repayments for up to eight years.

Dubai World will pay back $4.4bn of loans within five years and $10bn over eight years. Dubai’s finance ministry will convert $8.9bn of its loans to Dubai World into shares.

The deal means lenders will not have to take “haircuts” to their loans. The five-year maturity will pay a one per cent interest rate while the eight-year maturity will pay a one per cent base rate plus up to 2.5 per cent variable interest.

Because the scheme has the backing of Dubai World’s major creditors, who represent 60 per cent of its debts, only lenders representing a further six per cent need to vote in favour.

But many of the 90 smaller creditors are unhappy with the terms thrashed out. One Gulf-based banker said: “We are in a no-choice situation. Under the circumstances this seems the best deal possible, even though it is not entirely satisfactory.”

Legal experts said even a single appeal to the special tribunal set up to rearrange Dubai World’s finances in December could prolong the restructuring process by months. A claim would force the group to enter a standstill until the litigation was resolved.

Nonetheless Aidan Birkett, leading Dubai World’s restructuring, said: “This is an important milestone and reflects our efforts to achieve the best possible solution for all stakeholders.”

Mohieddine Kronfol, managing director of Dubai-based Algebra Capital, predicted the smaller lenders would “ultimately fall in line” with the lead consortium. He added: “The market has largely priced in the expectation of an agreement.”

Credit default swaps on Dubai government debt tightened 28.3 basis points to 440, while DP World narrowed 15.8 basis points to 370, according to CMA DataVision.