Dubai unveiled a $ 9.5bn rescue plan for state-owned conglomerate Dubai World and its property unit Nakheel in March.
The source, who asked not to be identified, said Dubai World added the 1 percent payment-in-kind option, a lump sum interest payment at the end of a loan maturity, to sweeten the offer.
“(It’s) fish market haggling over prices, only this is played out in the media,” said another person familiar with the process.
A Dubai government spokeswoman declined to comment yesterday, reiterating that the government’s plan called for a cash interest payment as well as a payment-in-kind. Dubai World is in talks with a core panel of seven banks—five foreign banks and two local ones—which represents more than 97 creditors. A 2 percent total rate may still be seen as low by local lenders whose borrowing costs are higher compared with some of the foreign banks on the panel. “For local banks the difference between their cost of funding and the offered rate is still high, it creates a funding mismatch,” said one banking expert.
Under Dubai’s debt deal, lenders would receive new debt covering the $ 14.2bn they are owed over five to eight years at an undislosed commercial rate.
The plan is to be partly funded by asset sales, with any shortfall guaranteed by the government.
“It’s a step in the right direction but I am not sure the offer will be overwhelmingly accepted by the creditors,” said John Bates, head of fixed income at asset management firm Silk Invest in London. “It’s looking closer now but there’s still quite a gap between the current level (2 percent) and the level being offered to trade creditors.”
Nakheel’s trade creditors have been offered repayment through a mix of 40 percent cash and 60 percent in a sukuk, with a 10 percent annual return.
In contrast, Dubai Electricty and Water Authority (DEWA) offered an 8.5 percent coupon on a recent bond issue. “If you think DEWA’s offer, which is not part of the Dubai World group, was priced at 8.5 percent, I feel that it really ought to be at that kind of level,” Bates added.
