So next month we’ll see a standstill proposal from Dubai World:
Dec. 22 (Bloomberg) — Dubai World will present a standstill offer to banks in early January as the state-owned company aims to restructure $22 billion of debt, said three bankers who attended a presentation on the matter yesterday.
Dubai World, which owns property unit Nakheel PJSC, port operator DP World Ltd. and investment firm Istithmar World PJSC, told lenders it needs time to allow its assets to recover from a drop in value following the credit crunch, said the bankers, who declined to be identified because the meeting was private. Some assets may be sold over time to repay debt, they said.
This is a foot-dragging attempt, plain and simple. I simply can’t believe the notion that they are waiting for “assets to recover” because if they think asset prices are going to recover before 4/30/2010, which is when the support from Abu Dhabi expires, they are simply deluding themselves.
My guess is they are trying to set the tone for the standstill negotiations they need to complete. Because Abu Dhabi stipulated that Dubai needed to get a standstill agreement secured with its creditors. The original agreement stipulated $4.1bn would go to the Nakheel sukuk, leaving $5.9bn for other debt payoffs and timely payments to the other creditors – like vendors supplying materials for the construction of all of the projects they undertook. But it all starts with successful negotiation of a debt standstill. And so, they don’t want to be seen as making the first move because that would be interpreted as a sign of weakness.
It’s also telling that there’s already talk about the sale of assets to aid in the restructuring, and there has been a steady drumbeat of discussion about the subject as a means to raise money. I’m getting the idea that this is going to be more a question of how Dubai can figure out how to walk away from some of these projects without being the poster child for either stupidity or malfeasance.
But either way, I suspect some of these projects will be considered as defaults when the dust finally settles, since the asset sales will amount to short sales against the debt. And the loss given default (LGD) will be a lot higher than anyone imagined.