Small BusinessDubai World creditors may reject standstill pact: report
Creditors of Dubai World are likely to reject a standstill agreement proposed by the company, a move which might lead to further "wrangling", media report says.
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"Creditors of Dubai World are expected to reject a standstill agreement proposed by the company, threatening to drag out negotiations over $26 billion worth of the conglomerate"s debt," the Guardian said.
Advisers associated in the talks said, the process which involves 100 accountants, lawyers, bankers and other professionals could take months.
Quoting sources, the report said, "If the standstill is rejected and a default is triggered, all parties would have to compromise to reach a restructuring agreement."
Creditors – including UK banks such as RBS and Standard Chartered, as well as hedge funds – are in a weaker position as Dubai does not have a creditor-friendly legal environment.
Citing one source the daily said "suing Dubai World, in Dubai, over Dubai-based assets would be legally very expensive and would go very slowly".
"Creditors are also unlikely to present a united front – some might want to swap some debt for assets, holding on to them in the hope that the market will recover, while others will want cash," the report said.
Crisis like this generally attracts distressed debt investors, who usually buy debt at a significant discount with the view that a restructuring will increase the value of their debt, or that they could seize some assets.
"Distressed debt players, typically aggressive and used to legal threats and action, may push the company into a better deal for creditors – although too much pressure can make a deal fall apart," the report said.
The restructuring is affecting other government related entities, also seen to have less support from the government.
Ratings agency Standard & Poor"s downgraded six Dubai government related entities as it "revised its expectation for the likelihood of extraordinary support from the Dubai government to low".
The six are DIFC Investments, ports operator DP World, Jebel Ali Free Zone, commodities market Dubai Multi Commodities Centre Authority, Dubai Holding Commercial Operations Group (an investment company), and property developer Emaar Properties.