DUBAI: Dubai’s assets may be virtually untouchable, so any holders of bonds issued by flagship property firm Nakheel that take legal action to recover potential losses could be wasting their time, lawyers said on Thursday.
Government-owned conglomerate Dubai World wants time to restructure $26 billion of debt it and its main property units, Nakheel and Limitless World, owe and has asked creditors for a standstill on bond repayments until May 2010.
About $6 billion of that relates to bonds issued by Nakheel including a $3.5 billion Islamic bond that matures on Dec. 14.
Creditors, including the likes of Standard Chartered, HSBC and Lloyds, have chosen lawyers and auditors to represent them and have yet to respond to the request for restructuring.
Rejection would tip the Islamic bond, or sukuk, into default, opening the door for legal proceedings.
Creditors could sue in English courts as well as in the United Arab Emirates, a seven-member federation that includes Dubai.
But even if they win and a court orders assets to be seized, the sukuk agreement and the UAE’s foreign ownership laws cast doubt on whether such a verdict could be enforced, lawyers say.
The sukuk prospectus alone throws up several questions about enforceability. “What the article (in the prospectus) is basically saying is where the agreement says English law is applicable, it is not certain that the Dubai courts would actually apply English law as opposed to local law,” said Essa Jawahery, a lawyer at Elham Ali Hassan & Associates in Manama. “The second thing it is saying is ... once the English court gives the judgement, bringing it to Dubai to enforce it might be difficult because it’s not possible to take execution measures on property owned by the government or the ruling family.” The United Arab Emirates economy minister, Sultan bin Saeed Al-Mansouri, said on Wednesday it is only a matter of time before Dubai World restructures its debt and meets its obligations, the official WAM news agency said. But the troubled conglomerate’s creditors are gearing up for action.
Key lenders have set up a committee and picked their legal and financial representatives. Dubai’s Emirates NBD — one of two UAE banks on the creditor committee along with four UK banks — is the biggest creditor with outstanding loans of $3 billion, the Financial Times reported on Thursday, citing bankers and their advisers.
The panel will meet Dubai World for the first time next week, just days before the first Nakheel bond, which is guaranteed by Dubai World, matures on Dec. 14.
“The bond is covered by English law, so once they are declared in default the lawyers will be trying to attach the assets of all the subsidiaries, including Dubai Ports World,” said one Nakheel bondholder, who asked not to be named.
This is unlikely to happen, said Essam Al-Tamimi, Senior Partner at Dubai-based law firm, Al-Tamimi and Company.
