Confidence hinges on final DW deal agreement

Full agreement on Dubai World restructuring deal would buoy Dubai’s financial industry and restore confidence in emirate, Moody’s says.

A final agreement on Dubai World’s debt restructuring deal would restore confidence in the emirate’s financial sector and reduce expected losses among local lenders, Moody’s said on Monday.

The credit rating agency’s comments are in response to Dubai World’s agreement with 60 per cent of its lenders over a $23.5bn debt restructure.

In an emailed statement, Moody’s Investors Services said: “Acceptance by bank lenders would go a long way towards confirming lower-than-feared loan losses for the banks involved and consequently for restoring confidence in Dubai’s financial sector, both credit-positive developments.”

It added that the losses incurred by the banks would depend on the restructuring option they chose, which all carry interest payments and government guarantees.

“We estimate that impairment losses on the restructured facilities will average 10 per cent to 20 per cent, discounted at the original effective interest rates,” Moody’s said.

“As such, the effect of these losses on the banks’ Tier 1 capital will be less than 6 per cent to 12 percent for the most affected banks as of year-end 2009, reaffirming our initial assessment that this exposure by itself would not jeopardise the solvency levels of the rated banks, posing moderate risk to their ratings.”

On the restructured debt payments, Moody’s said Dubai World should be able to meet its financial commitments.