Dubai?s struggle to stave off a wider debt restructuring by placing short-term debt maturities under a standstill agreement is redefining Middle-Eastern lending, a banking source said on Tuesday.
Dubai World said on Monday that it had started negotiations with its lenders over $26 billion of debt owned by its main property firms Nakheel World and Limitless World that matures before the standstill deadline of May 30, 2010.
This indicates a staggered approach to solving the Emirate?s debt problems?tackling bond and loan maturities as they fall due?which will do little to reassure loan and bondholders who are scrambling to assess support for their debt, bankers said.
?If banks are put into a Dubai World restructuring, they will have to decide whether to cut their lines to Dubai and if they would be prepared to refinance other Dubai debt,? a banker close to the situation said.
The $26 billion of debt affected under the standstill includes a $3.52 billion sukuk bond for Nakheel that matures in December and another 3.6 billion dirham bond due May 2010.
A $1.2 billion Islamic loan for Limitless that was signed in March 2008 and matures in March 2010 is also included, along with other Dubai World debt. bankers said.
?There is also Dubai World debt which is not publicly known that is being addressed at the same time,? a second banker close to the situation said.
Bankers said other Dubai World debt is started to be identified that includes bilateral loans from individual banks to various companies in the group.
?There are a number of bilateral (loans) coming out of the woodwork it seems so it?s very difficult to work out exactly how much (is owed) and to whom, which doesn?t help,? a third banker said. A $5.5 billion loan for Dubai World is not included under the $26 billion figure as the first repayment is due in June after the standstill expires, several bankers said.
Lenders however expect this loan to be restructured, possibly along with the rest of Dubai?s international debt, which includes $45 billion of syndicated loans,.
Under a standstill agreement, steering committees of bondholders and lenders with the largest exposure to the borrower usually gather to start formulating restructuring proposals.