DP WORLD AND JAFZA NOT INCLUDED IN RESTRUCTURING

DP World and Jafza not Included in Restructuring

DUBAI - DP World Ltd. and Jebel Ali Freezone will not be included in the financial restructuring of their parent firm, Dubai World, officials said on Thursday, after credit-rating agencies Standard & Poor's and Moody's Investors Service downgraded some Dubai government-run companies once the restructuring plan became public. Dubai World, saddled with $59 billion in debts, surprised markets on Wednesday by stating that it would Ask its creditors to accept a delay in all repayments until the end of May, 2010. The government-owned group said it would seek a “standstill agreement” extending the maturities of debts owed by its member companies, including a $3.52 billion Islamic bond that its property subsidiary Nakheel PJSC is obliged to repay on December 14.In a filing to NASDAQ Dubai, DP World, the fourth-biggest operator of container ports worldwide, said it would not be part of the restructuring effort at Dubai World.A person knowledgeable about the restructuring effort said that Jebel Ali Freezone, or Jafza, also would not be included in the restructuring. Jafza operates a 48-square kilometre free zone adjacent to Jebel Ali port and Dubai’s planned Al Maktoum International Airport.Dubai World’s logistics units, including port operations and the free zone, are believed to be among its most financially sound businesses.It was not clear whether any other Dubai World member companies would be excluded from the financial restructuring. Officials at Dubai World did not immediately respond to requests for clarification.Standard & Poor’s, acting late last night Dubai time, cut its debt ratings for several Dubai government-owned and related companies, including DIFC Investments, Dubai Holding Commercial Operations Group and Emaar Properties, as well as DP World and Jebel Ali Free Zone.“The rating actions are the result of the announcement on November 25 of the restructuring of the debt obligations of Dubai World and Nakheel. Such a restructuring may be considered a Default under our Default criteria, and represents the failure of the Dubai government to provide timely financial Support to a core government-related entity,” S & P said in a statement.Moody’s downgraded DP World, Jafza, Dubai Electricity & Water Authority, DIFC Investments, Dubai Holding Commercial Operations Group and Emaar Properties. Moody’s doesn’t rate Dubai World or Nakheel.International financial markets reacted negatively to Dubai World’s announcement, and credit-default swaps — a form of insurance against Default by an issuer of debt — rose sharply across the Gulf region.Five-year credit-default swaps in the Gulf were trading at 550 to 600 basis points and were likely to stay high, said Luis Eduardo Costa, a London-based emerging market debt strategist at Commerzbank.“In terms of pricing implications, we believe Dubai Risk is poised to remain elevated,” Costa said in an emailed statement. “We expect further pressure on the Dubai credit-default Swap side.”Shakeel Sarwar, the head of Asset management at Bahrain-based Securities & Investment Company, or Sico, said that the Dubai government might Risk “a technical default” if creditors balked at the debt standstill.“The important question is what happens after six months? How will Dubai World raise the money? Borrowing from the international markets under the current situation is difficult,” he said.Dubai World’s announcement left Open the possibility that it might need to Ask for a further delay in payments beyond May 30.Sarwar said that Dubai’s overall debt burden may force it to rely more heavily on neighbouring Abu Dhabi for support. Dubai’s government-related entities owe a total of nearly $50 billion in payments that are due over the next three years.“It takes years to rebuild trust, as we’ve seen in the case of Argentina,” Sarwar said.“I don’t think Dubai can afford to default.”(rocel@khaleejtimes.com)