World to Restructure $26 Billion Worth of Real Estate-Related Debt

Dubai World has entered into discussions with its banks to restructure its $26 billion worth of debt, including $3.5 billion owed by its property unit, Nakheel.  Dubai World is Dubai’s flag bearer in global investments.  As a holding company it operates a highly diversified spectrum of industrial segments and plays a major role in the emirate’s rapid economic growth.  Dubai World’s investment spans four strategic growth areas of 21st century commerce: Transport & Logistics; Drydocks & Maritime; Urban Development; and Investment & Financial Services.

The rest of Dubai World’s liabilities are described as being on “a stable financial footing”.  Excluded from the negotiations will be debts from subsidiaries such as Infinity World Holding and Istithmar World Ports & Free Zone World, according to a Dubai World statement.  Currently, Dubai is trying to defer payments on less than half of $59 billion of its total liabilities.

Sheikh Mohammed Bin Rashid Al Maktoum – Dubai’s ruler and Prime Minister of the United Arab Emirates – said the debt that Dubai World plans to restructure includes approximately $6 billion of Islamic bonds sold by Nakheel.  “Initial discussions have commenced with the Banks of Dubai World and are proceeding on a constructive basis,” said a Dubai World spokesman.  “It is envisaged the restructuring process will be carried out in an equitable way for the overall benefit of all stakeholders.”

Dubai’s government said its Financial Support Fund will lead Dubai World’s workout process, and named Aidan Birkett of Deloitte LLP as the chief restructuring officer.  Dubai World plans to seek an extension of its loan maturities to May 30, 2010, at the very earliest.

According to Nick Chamie, an analyst with RBC Capital Markets in Toronto, “Now that they’re saying $26 billion, it reduces some of the panic that built up in the last few days.  This is positive.  The market was feeding on its own concern and there were talks of $60 billion debt that would need to be restructured.”