Dubai World to offer creditors DP World shares as ‘sweeteners’

Collateral as discussions continue over debts of $14.7bn.

Dubai World (DW) is to offer shares in DP World, its cash-generating global ports business, as security in the negotiations between creditors and the conglomerate over US$14.7 billion worth of debts.

Government-owned DW will also hold out the prospect of early repayments of some of the loans, and cash repayments via asset disposals, in the talks with bank creditors, it has emerged.

A spokeswoman for DW declined to comment on reports of the apparent “sweeteners” being offered in talks that have gone on since the spring, but a source familiar with the situation, speaking on condition of anonymity, said: “It is true they [DW] have offered to let creditors have collateral in the form of DP World shares, as well as some other incentives.”

A coordinating committee of banks, including HSBC and Emirates NBD, representing more than 100 creditors in total, is believed to be considering the offer. Many have already given their approval in principle for the new terms.

Under the new proposals, DW would offer early repayment of a tranche of $4.4bn of debt which matures a year from now. In return, it is asking creditors to extend the maturity of a bigger chunk of debt – some $10.3bn – for four years beyond the scheduled repayment date of 2018.

It is also suggesting that portions of the $10.3bn could be “amortised” – paid back in cash proceeds from asset sales before the maturity date.

The introduction of DP World shares into the negotiations is a significant development. DW owns 80 per cent of the company, with the balance held mostly by institutional shareholders on the Nasdaq Dubai and London stock markets.

DP World has been regarded as one of Dubai’s most valuable assets, with its market capitalisation of $16.72bn more than enough to cover its owner’s debts.

It is cash rich, with $3.5bn in the bank – earmarked for strategic expansion – as well as a so-far unused $3bn borrowing facility, negotiated earlier this year. Last month it reported a 42 per cent surge in headline profits to $372 million on the back of buoyant trade, especially at its UAE base in Jebel Ali.

Some analysts had speculated DW might sell more shares on global markets to help reduce its debt pile, or that it would use DP World resources in a “dividend recapitalisation” exercise that would result in DP World handing over cash to its parent in a special dividend.

However, the use of DP World shares as collateral for debt is a new twist to the negotiation talks, which have been going on since April when the US investment bank Blackstone was appointed with a “debt optimisation mandate” by DW.

DW, under its chairman Sheikh Ahmed bin Saeed Al Maktoum, needs creditors holding more than 66 per cent of its debt to agree to the extension proposals to be able to use special Dubai bankruptcy legislation – Decree 57 – to win over any holdouts.

As a London Stock Exchange-quoted company, DP World is subject to strict regulations about using shares as collateral.

One lawyer said: “If the shares DW owns are unencumbered [not pledged as security to anybody else], there is no reason why they cannot be held as security.”

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