Dubai sets up panel for Dubai World debt settlement

Dubai has set up of a tribunal to settle all financial disputes between Dubai World, which is seeking to restructure around $26 billion of debt and its creditors.

The tribunal will hear and decide any demand or claim against Dubai World, including any demand to "dissolve or liquidate" the state-owned corporation, said a statement issued by the emirate ruler, Sheikh Mohammed bin Rashid Al Maktoum.

The setting up of the tribunal, to be established in the Dubai International Financial Centre, a tax-free business park for financial service firms, is part of a new insolvency code used in the emirate.

The move came hours after the government announced it would repay $4.1 billion to holders of the Islamic bonds (sukuk) of Nakheel, property developing unit of Dubai World, which matured yesterday, following a $10 billion support from Abu Dhabi.

Anthony Evans, Chief Justice of DIFC Courts, has been appointed the chairman of the tribunal while Michael Hwang and John Chadwick will be members. The tribunal shall not comprise more than five members, the statement said.

Dubai World announced on November 25 it would seek a standstill agreement with all creditors and extend all loan maturities to at least May 30, 2010.

Reports here said the conglomerate met six main creditors, including Royal Bank of Scotland Group Plc, on December 7.

Ratings agency Standard & Poor's, meanwhile, said the Dubai government’s intention to strengthen the laws governing the Dubai World restructuring is an opportunity to demonstrate the workings of its legal system in dealing with such events.

S&P, however, believes uncertainty would remain as to Dubai's general ability and willingness to provide timely extraordinary support to government-related entities (GREs), as well as transparency and predictability of such support.

Also, "we view the intervention of Abu Dhabi as an indication that it stands ready to safeguard the stability of the UAE economy and financial system", it said.

But John Sfakianakis, Chief Economist BSF - Credit Agricole Group, said Abu Dhabi has and will attach political conditions to its financial rescue, including possibly seeking strategic equity stakes in Dubai assets and reining in Dubai's independence in foreign policy, customs, as well as greater banking regulation on Dubai-based banks.

Abu Dhabi has pledged to provide $10 billion to Dubai to finance Dubai World and its subsidiaries.

Sfakianakis said with mountains of debt to be restructured by Dubai in the medium term, Abu Dhabi's bailout, while easing immediate investor worries about sovereign support for struggling Dubai companies, only scratches the surface in terms of the emirate's debt troubles.