Dubai World gets $9.5 billion state bailout

Dubai World have unveiled a restructuring plan which will see the group repay 100 percent of its $23.5 biliion debts through debt-for-equity swaps and new government funding.

The Dubai Government will be putting $9.5 billion itno new funding into the state owned conglomerate. Of this, $5.7 billion remains from loans from Dubai’s neighbour Abu Dhabi. The rest will be funded by the Dubai Government.

With the remaining $14.2 billion debt, Dubai World has proposed converting $8.9 billion into equity. The remainder will be repaid using two new lots of debt maturing after five and eight years respectively. The government will then provide $1.5 billion for working capital and to help cover interest payments.

Most of the funding will go to support Nakheel, the Dubai real estate developer that is widely thought of being the trigger for Dubai’s property woes. The trigger for the property crisis was said to have been started when Nakheel were unable to repay a $4 billion sukuk (Islamic bond) which matured in December 2009.

Nakheel are most famous for their outlandish building projects such as the Palm Islands and The World, a group of man-made islands which are in the shape of a world map and recently have shown major signs of disrepair and slippage.

The group will now be receiving around $8 billion from the Dubai Financial Support Fund to help complete some of its unfinished building projects around the city.

Many of Nakheel’s suppliers have gone unpaid since last year. Creditors have been asked to extend the maturity of Nakheel’s debts however there is no definite date on which these will be repaid.

In the past few months it has emerged that suppliers were asked by Nakheel to accept as little as 50 percent of their contracts. Many firms are owed millions. However under new terms, contractors and suppliers will be receiving small cash payouts to help cover short-term costs.

Forty percent of their agreed claim will then be paid in cash with the remaining sixty percent being paid in a publicly tradable security which is hoped to yield the full remainder of the debt owed in five years time.

The proposal now passes to a committee of creditors, which must seek agreement from Dubai World’s 97 banks.

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