Today's Financial Times article.
I'm not sure if this is "news" in one sense. Like haggling for a rug in the suq, the smart buyer doesn't take the first price offered.
Dubai World and Nakheel may be forgiven (at least initially) if they made certain assumptions about the bondholders' reaction. Many previously successful borrowers actually believe that they hold a privileged place in the market even if they have bad news of a standstill or rescheduling. Our lenders will understand they think. They don't realize that the lenders' knee-jerk reaction to such news will take them from hero to zero. Another complicating factor is there have been changes in the composition of sukuk holders. The heavy selling of the certificates between the end of August and November (just prior to the announcement). was not relationship banks buying additional certificates. Rather they were unloading what they had. Many of the new faces - as I presume QVT is - are likely to be transaction oriented investors with no relationship to protect vis-a-vis Dubai. And so less likely to be as sympathetic as the former. They could well be a convenient screen for relationship banks to hide behind. Though as well they could be a thorn in the banks' side. The banks have other exposure which will have different conditions and legal protections. So they will have an entire "package" to consider where the transaction oriented investors with only a single bond to worry about will have a different set of priorities and considerations.
Dubai World and Nakheel may be forgiven (at least initially) if they made certain assumptions about the bondholders' reaction. Many previously successful borrowers actually believe that they hold a privileged place in the market even if they have bad news of a standstill or rescheduling. Our lenders will understand they think. They don't realize that the lenders' knee-jerk reaction to such news will take them from hero to zero. Another complicating factor is there have been changes in the composition of sukuk holders. The heavy selling of the certificates between the end of August and November (just prior to the announcement). was not relationship banks buying additional certificates. Rather they were unloading what they had. Many of the new faces - as I presume QVT is - are likely to be transaction oriented investors with no relationship to protect vis-a-vis Dubai. And so less likely to be as sympathetic as the former. They could well be a convenient screen for relationship banks to hide behind. Though as well they could be a thorn in the banks' side. The banks have other exposure which will have different conditions and legal protections. So they will have an entire "package" to consider where the transaction oriented investors with only a single bond to worry about will have a different set of priorities and considerations.
In any case, it seems a group representing 25% of the bondholders (by amount) has formed to oppose the standstill. As per the typical contract, if 25% vote for an early termination of the sukuk, repayment is accelerated. So despite its small number, this group has significant power.
I'll be taking a look at the Offering Circular for the issue to see if there's anything in the sukuk that gives them leverage. Of course, one leverage creditors always have is to complicate the life of the obligor via bad publicity and obstruction if nothing else. This is particularly important when a borrower needs to raise new money or roll over existing debts - as is the case with Dubai.
On that score later today, I'll be commenting on the proposed 1Q 2010 US$2 billionn DEWA sukuk after I've stoked the engines with some Cafe Najjar.
On that score later today, I'll be commenting on the proposed 1Q 2010 US$2 billionn DEWA sukuk after I've stoked the engines with some Cafe Najjar.
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