Dubai World has written to its bank creditors to tell them that interest payments on its debts will stop being paid from the beginning of May, unless creditors agree to its terms for restructuring the debt before the end of the month.
Banks say they began to receive notice from Dubai World about the intention to stop interest payments on 17 May. Sources close to the talks say it adds to the pressure to get a deal agreed, although an agreement by the end of the month is unlikely.
One source close to the talks says, “At the moment I think an agreement before the end of May is unlikely, but we never know what is going to come from their side.”
The latest communication from Dubai World also indicates that the current offer to bank creditors will not be improved. At the moment banks have been offered an extension to their loans of either five or eight years, and with a one per cent interest rate, and an additional one per cent paid at the maturity of the loans.
Dubai World began seeking a debt standstill agreement in late November. No standstill was agreed though, and instead Dubai World went straight to negotiating a restructuring of its debts, split between $14.2bn on Dubai World, and $9.3bn on subsidiary Nakheel. But under the terms of a $10bn bailout from Abu Dhabi in December 2009 interest would be paid in Dubai World until the end of April.
Sheikh Ahmed bin Saeed al-Maktoum, chairman of the Dubai Supreme Fiscal Committee which is responsible for providing loans to indebted state-owned firms, said on 9 May that he hoped an agreement with Dubai World’s creditors would be in place within two weeks.
Dubai World would not comment on the proposal.