Dubai World reaches agreement on its $23.5bn debt

State-owned real estate and ports conglomerate Dubai World has agreed 'economic terms in principle' with 60 percent of its lenders on the restructuring of its $23.5 billion debt.

Dubai World, the real estate and ports conglomerate owned by the emirate of Dubai, has reached an agreement with more than half of its bank lenders over meeting its $23.5 billion repayment obligations.

In a statement made earlier today, Dubai World said “economic terms have been agreed in principle” with the ‘coordinating committee’ which represents 60 percent of its lenders.

The news brings one of the first signs of relief to Dubai since Dubai World revealed late last year that it would struggle to repay its debts, then approximately $26 billion, and would need a six month extension. World markets were further rocked when the emirate said it would not automatically support the conglomerate. A company-wide restructuring process ensued resulting in various Dubai World companies and assets being ring-fenced from others and senior executives being moved between companies or leaving.

The conglomerate said: “Since Dubai World presented its restructuring proposal on 24 March 2010, the company and the coordinating committee have been engaged in constructive discussions. Following these discussions, the proposal has been refined to provide options that better accommodate the needs of our large and diverse lending group.”

The restructuring announced today will lead to Dubai World’s debt pile shrinking to $14.4 billon – split into two debt tranches of $10 billion and $4.4 billion to mature after eight years and five years respectively. These debts will be repaid via various instruments including “payment-in-kind” coupons which effectively enable the owner to benefit from future upswings in asset values.

The remaining debt owed will be met by the government with aid from neighbouring emirate Abu Dhabi committed previously.

The measures announced today will, however, still require approval from Dubai World’s other creditors.

Aidan Birkett, chief restructuring officer of Dubai World, said: “This is an important milestone and reflects our efforts to achieve the best possible solution for all stakeholders. The proposal puts the Company on a sound financial footing and reflects the continued support of the Government of Dubai and its lenders. It offers the Company the ability to maximise the value of its assets over the medium to long term.”