Dubai World to Propose $26 Billion Debt Repayment Plan


Investors may want to keep a keen eye on the world markets Wednesday in light of reports that state-owned holding company Dubai World is gearing up to make a $26 billion debt repayment proposal to banks -- with interest.

Dubai, which jolted world markets in November when it asked to postpone $26 billion in debt payments for Dubai World, may be seeing better days.

According to a Reuters report that cited an Al Arabiya broadcast, Dubai World will offer a full repayment on the $26 billion it is renegotiating, and kick in interest that may be tied to LIBOR. The company intends to propose a seven-year debt repayment plan to its 97 creditors, according to the report.

Banks, however, would face the prospect of booking losses for the year on this debt, given the differences on the proposed rate of return versus what the original contracts called for, according to the report. Nonetheless, European markets in were trading in positive territory on Wednesday.

Markets across the world were rattled when Dubai initially announced its plans to delay its debt payments. In Asia, for example, there was an initial steep sell off, but markets managed to later recoup some of the losses after banks sized up their their actual exposure. One analyst at the time estimated that European banks could be holding as much as $40 billion in Dubai exposure, while another cited $84 billion in exposure to all of the United Arab Emirates.

In the U.S., investors also initially bailed when Dubai announced its intent to postpone debt payments last fall, but later the markets recovered. At the bell Wednesday, the broader U.S. markets opened in positive territory.