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Q&A-Dubai World to make debt offer to banks

DUBAI, March 21 (Reuters) - State-owned conglomerate Dubai World is expected to propose a $26 billion debt restructuring plan to its creditors imminently, in a move seen as a test of the emirate's ability to honour commitments. Discussions have focussed on a range of options, from an extension of maturities, to taking a haircut but with earlier repayment, and even the banks taking a possible stake in the indebted firm. The following Q&A sets out the main issues regarding the upcoming proposal, and next steps in the process. WHY IS DUBAI WORLD PRESENTING A RESTRUCTURING PLAN? Dubai World, one of three flagship holding companies of the Dubai government, invested heavily in the real estate boom which eventually burst in late 2008. Banks lent easily to Dubai World and its subsidiaries, assuming implicit government backing. After the global financial crisis, refinancing needs soared as banks stopped lending. In November, Dubai World said it would seek a delay on repaying $26 billion in debt, linked to its property units Nakheel and Limitless. The news caused global markets to tumble on fears the emirate could no longer service its debt. WHAT IS THE RESTRUCTURING PROPOSAL LIKELY TO CONTAIN? A range of options are being considered to restructure Dubai World's debt, some more likely to be accepted than others, although some creditors want nothing less than full repayment. As details of negotiations emerge, the potential for banks being forced to take a "haircut" appears to be reduced, but repayment terms are likely to contain an extension of maturities of five to 10 years and a reduction in interest income. WILL BANKS ACCEPT THE DEAL? Any deal seen to offer full repayment is likely to be well received by creditors but the fine print will be key, including the length of any extensions and payment of interest. It is also likely that banks want to see a change in how Dubai World is run, and while the company is unlikely to welcome creditors taking a seat on the board, greater involvement from Abu Dhabi, through a stake option, might be a mutual compromise. WHAT IF BANKS REJECT THE PLAN? Creditors will be wary rejecting any proposal outright; several international banks have long standing relationships in the region which they will want to preserve, particularly in light of the Gulf's growth outlook. Local banks are closely linked to the government, and may have little choice but to accept. Even in the case of a haircut, local banks may end up being recapitalised to limit damage. If they reject its offer, creditors will force Dubai World into bankruptcy and a special tribunal related to Dubai World has been set up to hear cases. Taking Dubai World or its units to court is seen as the least favoured outcome. WHO ARE DUBAI WORLD'S CREDITORS? About 97 banks are affected by Dubai World's restructuring, seven of whom - considered the most exposed - have formed an informal coordinating committee. The committee consists of British banks HSBC, Standard Chartered, RBS and Lloyds, as well as two UAE banks, Emirates NBD and Abu Dhabi Commercial Bank. Asian lenders are also thought to hold a sizeable proportion of exposure to Dubai World units, and Bank of Tokyo Mitsubishi, a unit of Mitsubishi UFJ Financial Group was added to the informal banks' committee in January. China Construction Bank, another Asian heavyweight, is also baying for a bigger say in the negotiations. WHAT HAPPENS NEXT? The next stage in the Dubai World debt situation is to present a plan to the seven banks on the informal panel, who will then forward it to the full creditor group to consider. Negotiations could be long and protracted. The proposals will be pored over by risk committees and by the banks' management and board of directors and negotiations will commence. If anything less than full repayment is proposed, then a formal creditor committee may be formed which could include more or fewer banks, and different banks to the current panel. (Reporting by Rachna Uppal; Editing by Hans Peters) Keywords: EMIRATES DEBT/Q+A Keywords: EMIRATES DEBT/Q+A =2 Keywords: EMIRATES DEBT/Q+A =3 (rachna.uppal@thomsonreuters.com; +971 4 391 8301; Reuters Messaging: rachna.uppal.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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