Dubai deal just the kickoff in a long game: Analysis

RELATED NEWS Dubai World to propose plan to restructure $26 bn debt

Bankers will see Dubai's plans to restructure USD 26 billion in debt as a kickoff in a long game and not a goal if other high-profile restructurings, such as Russian aluminium producer UC RUSAL are a guide.

Dubai World, the holding company harbouring the emirate's flagship property firm Nakheel, builder of palm-shaped islands, is the playing field for one of the biggest emerging markets debt dramas ever, and an announcement is expected this week.

"We have a long way to go before we have any real clarity on how this restructuring will pan out," a London-based banker specialising in lending to the Middle East said.

All restructurings are unhappy in their own way and the size, scope and political dimensions of Dubai World's make it unique. Bankers view political support from Abu Dhabi or the UAE as critical to the restructuring rather than the terms, which will change as negotiations progress.

"The solution is still looking pretty political. Banks will want to see more explicit support governmentally and ideally at the UAE level," a senior emerging markets banker said.

Dubai World's ability to generate cashflow is the next most important variable. Bankers believe cashflow generation is limited and see the restructuring as a play on land and real estate with slower recovery potential than RUSAL.

A downturn in commodity prices limited RUSAL's ability to service and repay debt, which improved as prices rose. A quick exit is not expected for Dubai as property units Nakheel and Limitless have little cashflow and their value is their assets.