Investor confidence in Dubai took a fresh knock on Tuesday as its leaders dithered over a rescue for debt-laden company Dubai World and ratings agency Moody's slapped a downgrade on government-related debt.
"You can usually take the view that no news is good news, but in Dubai's case it's quite the opposite — investors need to hear some developments on Dubai World's restructuring," said Julian Bruce, EFG-Hermes director of institutional equity sales.
Leading lenders were waiting to hear from the flagship firm as they negotiate payment on a $3.5 billion sukuk, the world's largest, issued by Dubai World subsidiary Nakheel and viewed as a litmus test for the creditworthiness of many Dubai-linked corporations.
On Nov. 25 Dubai World said it needed a a six month standstill on payments, but on Tuesday, a government official said it would need more time than that.
"The period of six months would be too short for a full restructuring. The six month period would focus on the creditors, the contractors and so on," Abdulrahman al-Saleh, head of the Dubai finance department, told Al Arabiya TV.
Dubai World is a flagship company of the emirate, building everything from ports to luxury apartments. It is owned by the Dubai government, but state officials have said they will not sell other government assets to bail it out, so the company's debt is trading at about half its face value.
Dubai World met its main creditors on Monday to discuss its request to delay repayment of $26 billion in debt.
Dubai's government would support the group "as an owner", Saleh said, without being more specific.
"The government is present to provide backing as an owner … we would like to emphasise the distinction between guaranteeing and backing. The company receives large backing from the government since its inception," he said.
CONFUSION REIGNS
Further confusion hit home when Saleh said a Dubai fund had given Dubai World $2.45 billion. A source later clarified that the money was not new, and was made as part of $10 billion aid to business in February.
Dubai stocks slid and debt markets were battered by the continued uncertainty.
The cost of insuring Dubai's debt against restructuring or default rose to 515.6 basis points in the five-year credit defaults swaps market, compared to a U.S. close of 500 bps. Nakheel's sukuk, maturing this month, one fell 2 points to 50 cents on the dollar.
"The situation isn't clear — people need further information to decide what to do," says Adel Nasr, United Securities brokerage manager in Muscat.
DEBT TALKS
Dubai World's creditor steering committee is still waiting to hear from the company via its advisers as next Monday's bond repayment deadline draws closer.
"We want to hear something from the company that lays out the foundations and cornerstone of their thinking and what they're working on," a banker close to the deal said.
London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, along with local lenders Emirates NBD and Abu Dhabi Commercial Bank are on the creditor panel discussing the restructuring.
The UAE central bank told local banks to report any exposure to Dubai World in a circular dated Dec. 6, bankers said on Monday.
Dubai's finance chief said on Monday that Dubai's government and Dubai World were not the same, suggesting the emirate's most valuable firms, such as Emirates airline, Dubai Aluminium (DUBAL) or its 21 percent London Stock Exchange stake would not be involved in a firesale.
Dubai's debt rescheduling plans could go beyond the recently announced Dubai World standstill, extending to about $47 billion on the back of further restructuring needs of government-related entities, Morgan Stanley said in note on Tuesday.
