Dubai World Lenders To Get Total 2% Interest On Debt

Dubai World creditors are being offered a total 2% interest on the group's $23.5 billion debt excluding Dubai government claims, and a shortfall guarantee from the government of Dubai, a banker familiar with the talks said Thursday.

"Lenders are offered a 1% annual cash interest and another 1% annual payment in kind accrued and paid at the end of the restructuring period," the United Arab Emirates-based banker, who declined to be named, said.

The interest offer covers the $14.2 billion of debt that Dubai World owes to creditors besides the government. The Dubai government, through the Dubai Financial Support Fund, has proposed to convert $8.9 billion of debt claims into equity, subordinating its claims to other creditors, Dubai World said in March.

A Dubai World spokesperson declined to comment when contacted by Zawya Dow Jones.

A spokesperson for the Dubai government could not deny or confirm the offer details but said the proposal ensures that the banks recover their principal through income generated from the group's assets and a Dubai government shortfall guarantee.

"Banks will also receive a cash interest payment and a payment in kind element," the spokesperson told Zawya Dow Jones Thursday.

Dubai World has assets estimated to be worth more than $100 billion, according to the company's 2008 financial report, the last value of assets on record.

The Dubai government said in March it plans to repay creditors 100% of the principal amount due, but through extended tenor periods, putting an end to the uncertainty of the potential restructuring scenarios and their implications for the Dubai economy.

For Dubai World, the proposed tenor extension will be achieved through two new debt issuances--one with a five-year maturity and the other with eight years to maturity.

"Despite the fact that banks are offered subcommercial rates on the debt, creditors are structurally subordinated having lent completely unsecured to Dubai World," a Dubai-based analyst said.

"It's a pretty good deal considering that Dubai World lenders do not have a legal recourse to any assets of Dubai World subsidiaries," he added.