According to UBS AG and Moodyâ€™s Investors Service, Dubai Worldâ€™s approval from creditors to change the terms on $24.9 billion of debt is likely to boost confidence in the emirate, its banks and markets.
The conglomerate is â€œwell positioned to close the restructuring in the coming weeksâ€ after agreeing with about 99 percent of creditors, Dubai World said in an e-mailed to Reuters statement yesterday. The company in November sent emerging market stocks tumbling after it sought a â€œstandstillâ€ agreement on its debt payments.
The director for Middle East and Africa debt capital markets at UBS AG, was cited by Reuters commenting that this is positive news for Dubai. Investor’s confidence in the banking sector is expected to improve.
The United Arab Emiratesâ€™ biggest banks increased provisions this year to cover losses related to Dubaiâ€™s troubles. Dubai World, one of three state-owned holding companies, and real-estate developer Nakheel PJSC were forced to renegotiate debt terms after the deepest financial crisis since the 1930s led to a 50 percent drop in property prices and left companies unable to raise new funding.
Abu Dhabi Commercial Bank PJSC, the countryâ€™s third- largest, said in July it had impairment allowances of 2 billion dirhams ($544 million) for the first half and exposure of 6.6 billion dirhams to Dubai World. The bank reported a loss in the period. Emirates NBD PJSC, the U.A.E.â€™s biggest, raised general provisions for bad loans by 668 million dirhams in the second quarter, contributing to a drop in net income.
The main lenders also include Royal Bank of Scotland Group Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Standard Chartered Plc and Bank of Tokyo-Mitsubishi UFJ Ltd.
â€œInvestors now have a good precedent and insight as to the conduct of large scale corporate restructurings in the U.A.E., key information when making future lending decisions,â€ Khalid Howladar, a Dubai-based senior analyst at Moodyâ€™s Investors Service, wrote to Reuters.
Credit-default swaps tied to Dubai government debt narrowed 4 basis points to 458 in London yesterday. The contracts, which pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government fail to adhere to its debt agreements, reached 627.4 at the close on Feb. 12, the highest this year, according to CMA prices.