Dubai World and Its Developer Get a $9.5 Billion Lifeline

Dubai World and its real estate developer Nakheel are poised to get a badly needed shot of new funding -- up to $9.5 billion -- the Dubai government announces today.

Dubai's government is footing the bill, and this is expected to soothe the companies' long list of creditors and potentially calm a nervous market. Investors have fretted over the exposure faced by international banks, particularly those in Europe.

Key Players in the Economy

Under the rescue proposal, a large portion of the funding will come from $5.7 billion remaining from an existing loan issued by the government of Abu Dhabi and Dubai government resources. In issuing its financial support, Dubai's government cites Dubai World and Nakheel as key players in strengthening the "economic future of the Emirate of Dubai and the wider United Arab Emirates," which explains its interest in keeping the project afloat.

Last November, Dubai World rocked the markets when it announced its plans to delay approximately $26 billion in debt payments. The company and its developer are best known for the Palm Jumeirah and World projects, man-made islands that are expansive luxury playgrounds. The government appointed a chief restructuring officer and a tribunal framework to deal with creditors.

Dubai World and Nakheel also unveiled their restructuring proposals today.

Dubai World's proposal calls for converting the government's $8.9 billion of debt and claims into equity. This represents 38% of its total standalone debt and guarantees. Dubai World, at the end of the year, faced $23.5 billion in total financial liabilities.

Dubai World is expected to also receive $1.5 billion in cash from its government to fund working capital and interest payments arising from new debt instruments. Creditors outside the government will receive full repayment of their principal via the issuance of new debt in two tranches with five- and eight-year maturities.

Awaiting Creditors' Approval

"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. It offers the Company a strong future and the opportunity to maximise the value of its assets over the medium to long term," says Aidan Birkett, Dubai World chief restructuring officer, in a statement.

The company will be working with its creditors in the coming weeks to seek approval on its restructuring proposal.

Nakheel, meanwhile, says it also expects to repay its creditors all of the debt owed and complete any of its near-term projects.

Under its restructuring proposal, Nakheel is asking the government to provide roughly $8 billion to fund operations and settle its liabilities. Nakheel's proposal, which needs creditors' approval, also calls for the government to convert its $1.2 billion debt claim into equity.