Nakheel to repay debts following Dubai World rescue

By Chris Sleight25 March 2010

The government of Dubai has announced a US$ 9.5 billion bailout package to rescue state-owned holding company Dubai World. The cash injection will see its subsidiaries, including property developer Nakheel, put restructuring plans to their creditors

Nakheel will receive an injection of US$ 8 billion from the state's Dubai Financial Support Fund (DFSF) to cover funding requirements and existing liabilities. DFSF has also agreed to convert the existing US$ 1.2 billion of debt owed to it by Nakheel into equity.

Nakheel will be putting the restructuring plan to its creditors for approval in the coming weeks. However, ahead of the final agreement, DFSF has provided it with US$ 1.5 billion to pay contractors and keep current projects going.

Under the restructuring plan, trade creditors would receive 40% of their claims in cash, with the remaining 60% in the form of a trade-able security. Claims of AED 0.5 million (US$ 0.14 million) will be settled in full in cash. According to Nakheel, half of the contractors it owes money to have claims below this threshold.

Nakheel CEO Chris O'Donnell said, "Today's plan brings us a step closer to agreeing a solution that would enable Nakheel to complete work on near-term projects. The implications of this plan are therefore extremely positive for Nakheel, our stakeholders and the region as a whole, and all our efforts are now focused on reaching an agreement with creditors as soon as possible so we can implement the plan."

Aidan Birkett, Dubai World's chief restructuring officer added, "Today's plan is the result of extensive discussions between the Government, Dubai World, Nakheel and our stakeholders. It offers a fair and equitable solution for creditors and customers. If agreed, this plan will provide Nakheel with a stable, financial footing, enabling it to meet its outstanding obligations to customers and to continue its role in the ongoing development of the UAE real estate market."

Dubai World's debts total US$ 23.5 billion, which it says it will fully repay through a series of debt-for-equity swaps and the issuance of new bonds, as well as the new injection of capital from the government.

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