Nakheel offer leaves creditors little choice

05 May 2010

Creditors have not been given the details they want

After months of anticipation, the final announcement of the Dubai World debt restructuring in late March was still lacking in several crucial details. For bank creditors, they worried about how much interest they would get on being forced to extend their loans to the firm by up to eight years.

For the larger trade creditors, including a large number of beleaguered contractors, their concerns centred on the lack of detail about plans for the bulk of their unpaid bills to be settled through a sukuk issue that would mature in five years.

Six weeks later and the well organised group of bank debtors is inching ever closer to a settlement that each party agrees on. Meanwhile, the disparate trade creditor group is realising that under the terms of the deal offered to them one large creditor can prevent the issue of the sukuk that will pay the final 60 per cent of their outstanding debts.

If approval of the trade creditors deal reaches above 65 per cent but fails to get above 95 per cent, the last 60 per cent of outstanding claims will not be settled by Nakheel. With no way of coordinating their response, many creditors feel they have little choice but to accept the offer, or risk not receiving anything.

For Nakheel, structuring the deal in this way is a cunning method of ensuring that all its creditors have an interest in backing the plan. Early indications are that many will begrudgingly accept the offer rather than risk ruining it for everyone. Already one large contractor, Dubai-based Arabtec Construction, has done so.

The lack of a deadline for having to respond to the plan also risks leaving trade creditors with an even longer period of waiting for their bills to be paid. During which those who are holding up the process may even end up demonised by the rest of the market, eager to draw a line under the affair and move on.

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