GCC Credit Thoughts – December 6, 2009

On Friday, Ashurst, an international law firm and chosen legal representative for a consortium of Nakheel 09 certificate holders, held a conference call to provide their thoughts on the current situation with Dubai World. They have a core group on bond holders on board, who represent more than 25% of the principal amount of the outstanding sukuks. Below, please find my thoughts:

What has happened?

• Nakheel has a bond maturing on December 14, 2009, for the sum of $3.52 billion, which has a 14 day grace period, which means the absolute deadline is December 28, 2009.
  
• Under the Purchase Agreement, the Issuer must instruct Nakheel to buy the Sukuk assets, providing funds for distribution to certificate holders on the date of redemption. This notice must be served no less than 7 days from maturity (December 14), and it has been served.
  
• Nakheel and Dubai World, through Clearstream and the media, have made it clear that they want to enter into a standstill arrangement with creditors.
  
• It has been made public that Ashurst is in touch with a block of bond holders that make up in excess of 25% of the aggregate amount outstanding (25% of $3.52 billion is $888 million)
  
• Using the 28^th of December as a drop dead date, a 21 day notice would mean that all bond holders would need to be notified of an upcoming vote by the 7^th of December, at the latest – tomorrow. Since this has not occurred, it is probably not too much of a stretch to assume that the deadline will not be met.

How many certificate holders are required to pass any resolution, in the event of a bond holders' meeting?

• First Meeting – Notice period is 21 days (using the 28^th as a drop dead date, a notice will have to be in certificate holders' hands by the 7^th of December – tomorrow). Quorum is 75% of aggregate principal amount – a vote will happen ONLY if quorum is met and any resolution will be passed with 75% of the votes cast – So, a minimum of 56.25% of all certificate holders need to be in agreement to pass any resolution.
  
  • 75% of $3.52 billion is $2.64 billion – Aggregate amount that needs to be present to meet quorum
    
  • 25% of $3.52 billion is $880 million – Ashurst controls 25% that will block any motion for a standstill agreement
    
  • 75% of $2.64 billion is $1.98 billion – What Nakheel requires to pass a standstill agreement at the meeting
    
  • $2.64 billion minus $1.98 billion is $660 million – What Ashurst must control to have a chance at blocking the standstill agreement
    
  • Because Ashurst controls more than 25% of principal amount outstanding, they can block any motion for a standstill at the first meeting - $880 million > $660 million
    
• In the event that a quorum is not met in the first meeting, a 10 day notice will be provided to certificate holders informing them of a follow on meeting. The required quorum for the second meeting is 25% of the aggregate principal amount. There is no clarity around what percentage is required to pass a resolution in the second meeting, but Ashurst believes that a majority of the 25% would be required to pass any resolution.

What Can Happen Next?

• I believe that Ashurst will continue to try and emphasize its position against a standstill with Nakheel and will try and force a meeting of certificate holders. In the absence of such meeting, they will likely undertake whatever legal recourse may be possible.