Dubai World gets $9.5bn state bailout

Dubai World Bailout

Dubai World have unveiled a restructuring plan under which the group will repay its US$23.5 billion debt in full through debt-for-equity swaps and new funding from the government.

The Dubai government has announced it will provide US$9.5 billion in funding to help its Dubai World investment vehicle, all that is left is for creditors to decide whether to accept the plan. The deal also involves a cash injection of US$1.5 billion from the Dubai Financial Support Fund (DFSF).

In a statement on the restructuring plan, Dubai World said: "This proposal represents the best possible solution for all stakeholders.

"It follows extensive discussions with our creditors, a thorough review of Dubai World's businesses and significant financial support from the government."

Failure in a time of crisis

US$5.7 billion of the new cash comes from loans from Dubai's oil-rich neighbour Abu Dhabi which, after some deliberation, stepped in to bail out Dubai World for fear of the group's collapse impacting on its own economy. The rest will be provided by the Dubai government.

Of the US$14.2 billion of outstanding debt held by Dubai World's creditors, the group has proposed converting US$8.9 billion into equity, subordinating its claims to other lenders. This would represent 38 percent of the total debt.

Most of the support will go to Nakheel, the beleaguered real estate arm that kick-started the group's crisis when it defaulted on debts worth US$4 billion. Nakheel is the developer behind several of the Gulf state's most fantastical schemes, including the Palm islands and The World.

Investors are likely to favour the proposed restructuring plan, but it is a huge amount of money to invest in a group that now has a reputation for failing to operate properly in a time of crisis. Let's hope the same level of investment is made in putting the right people in the right places to deal with future shocks.

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Gulf stocks stabilise after Dubai crisis | Dubai slash state spending | Is Dubai about to hang itself?

Daniel Jones

Daniel is a Politics and Philosophy graduate from Cardiff University where he also worked as a section editor on the award winning student newspaper. After university he joined an IT support company where he was a B2B online writer. He loves anything to do with sport and joined GDS in July 2009.

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