Big name banks have lined up KPMG, the big four accountant, to salvage more than $30bn (£18bn) that they lent to Dubai World, the emirate's failing flagship global investor.
Dubai World, which counts the 1,539-room Atlantis hotel and Palm Jumeirah artificial island scheme among the many extraordinarily vast developments in its portfolio, shocked global markets last week when it asked for a repayment standstill with lenders.
The group, which owns UK ferry giant P&O, has a $59bn debt burden and last week hired Deloitte and Rothschild to renegotiate the terms of most of these loans. Dubai World has nearly 75 per cent of the Emirate's entire debt.
Dubai World will start a formal process next week that will see it invite leading banks, including HSBC, Royal Bank of Scotland (RBS), Lloyd's Banking Group and Standard Chartered, to create a steering committee to represent the many lenders. KPMG has been lined up by the lead banks to represent them in negotiations, with a formal appointment expected once the compilation of the five-to-six bank steering committee is finalised.
The remainder of the debt relates to bond issues and other restructuring experts are believed to be circling bondholders to secure what are arguably the biggest appointments in their sector since the collapse of Iceland's financial system.
The FTSE 100 closed down more than 3 per cent on Thursday as a result of Dubai World's announcement that it was seeking to delay repayment of part of its debt. This was the biggest one day collapse in eight months, with HSBC dropping 4.4 per cent. Lloyd's was worst hit on Friday, with shares collapsing 34 per cent to 58.6p, but the FTSE recovered from its sharp fall.
Dubai World owes RBS alone $2.3bn. By one estimate, HSBC has nearly $10bn in the emirate.
The Financial Services Authority has moved to seek assurances that UK banks will not suffer huge losses in the event that Dubai World fails. Nakheel, the group's property subsidiary, was due to make a $3.5bn bond repayment in two weeks and has already suffered hundreds of redundancies this year.
The news has sparked fears that the global economy could move into what could be described as a "W"-shaped recession, meaning the second of two steep declines.
On its website, Dubai World says that its business strategy is "driven by a combination of pragmatic acquisitions and prudent investments".Reuse content