Banks query fresh funds for Dubai World

Banks are questioning the source of US$3.5 billion (Dh12.85bn) of fresh funds that form a key part of a restructuring plan submitted to Dubai World creditors last week. While regional markets have responded positively to the proposals, bankers say the plan raises new questions about the emirate's ability to repay debts, even if the bulk of Dubai World loans are rolled over.

On Wednesday, the Dubai Government presented a proposal for restructuring $23.5bn of Dubai World debt in which banks were asked to roll over their loans to longer maturities of up to eight years. The offer has not yet been approved by bank creditors, which were owed $14.2bn at the end of last year. As part of the plan, Dubai is offering $3.8bn of new money, which it said would come "from internal government resources", without elaborating further.

The restructuring plan looked unlikely "to put the total external debt over gross domestic product on a sustainable trajectory", the Morgan Stanley analyst Paolo Batori wrote in a report. Dubai already has $109.5bn of outstanding debt, according to estimates from the IMF. Under a budget approved in January, the Dubai Government expects to run a Dh6bn deficit this year, its second shortfall in a row. That would be equal to about 2 per cent of GDP. This is despite cutting spending by 6 per cent. Morgan Stanley doubted that the rollover of loans would be sufficient for Dubai to put the total external debt-GDP ratio on a sustainable track.

Credit Suisse said the Dubai Government may not have much cash left to fund other unfinished property projects. "Although we believe this may result in a need to issue bonds, the Government said that there is no intention to issue any bonds in the near term," the Swiss bank said. EFG-Hermes said it expected Dubai's fresh capital injection to come from asset sales and cost savings. However, the Egyptian investment bank called the restructuring "better than expected" and said the "preferential treatment" of sukuk, or Islamic bond, holders "could be positive for coming bond issuances as well as future refinancing and restructuring of international capital markets in general".

JP Morgan also warned that the plan may be "negative" because it lacked any explicit government guarantees and, with the Dubai Government merely injecting $1.5bn in fresh money into Dubai World, the conglomerate's creditors would rely on asset sales and dividends going forward. "There is no mention of a government repayment guarantee for Dubai World's bank creditors," Zafar Nazim, a London-based analyst at the bank, wrote in a report last Thursday.

"The Government intends to inject only $1.5bn of cash into Dubai World to support its creditors and working capital commitments. In essence, Dubai World's creditors will be relying upon assets sales and dividends." Morgan Stanley also expressed worries that the restructuring may drag out longer than expected. The bank said hints by Dubai World that the discussions with creditor banks may take a while "can hide lack of consensus on the announced terms, causing potential risks ahead".

uharnischfeger@thenational.ae

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Starring: Alyssa Milano, Sam Page, Colleen Wheeler

Rating: 3/5

The National's picks

4.35pm: Tilal Al Khalediah
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At a glance

Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.

Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year

Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month

Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30

Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse

Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth

Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances

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Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
Premier League-standard football pitch
400m Olympic running track
NBA-spec basketball court with auditorium
600-seat auditorium
Spaces for historical and cultural exploration
An elevated football field that doubles as a helipad
Specialist robotics and science laboratories
AR and VR-enabled learning centres
Disruption Lab and Research Centre for developing entrepreneurial skills

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Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi

Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi

Round 3: February 7-9, Dubai Autodrome – Dubai

Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi

Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia

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Name: Kumulus Water

Started: 2021

Founders: Iheb Triki and Mohamed Ali Abid

Based: Tunisia

Sector: Water technology

Number of staff: 22

Investment raised: $4 million

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Stars: Tiger Shroff, Tara Sutaria, Ananya Pandey, Aditya Seal

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Engine: 4.0-litre flat-six

Power: 510hp at 9,000rpm

Torque: 450Nm at 6,100rpm

Transmission: 7-speed PDK auto or 6-speed manual

Fuel economy, combined: 13.8L/100km

On sale: Available to order now

Price: From Dh801,800

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Most wins by a trainer: Godolphin’s Saeed bin Suroor(9)

Most wins by a jockey: Jerry Bailey(4)

Most wins by an owner: Godolphin(9)

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Starring: Jack Black, Jennifer Coolidge, Jason Momoa

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Place a sun reflector in your windshield when not driving
Park in shaded or covered areas
Add tint to windows
Wrap your car to change the exterior colour
Pick light interiors - choose colours such as beige and cream for seats and dashboard furniture
Avoid leather interiors as these absorb more heat

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When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.