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LONDON, Dec 8 (Reuters) - A group representing a potentially blocking minority of bondholders in Dubai World unit Nakheel's $3.5 billion sukuk has written to Dubai World seeking repayment of the debt, a source familiar with the matter said on Tuesday.
Nakheel's sukuk is due to mature on Dec. 14, but the issuer has a two-week grace period for repayment ending Dec. 28. Dubai World sent Gulf and global markets into a tailspin when it said on Nov. 25 it needed a six-month standstill on debt payments.
The bondholders' group has held several conference calls, including one most recently last Friday.
"We sent a letter last week saying we do not accept the standstill, and we expect to be paid," the source said.
The group is spearheaded by New York-based hedge fund QVT Financial, sources say, and represents foreign bondholders only. Officials at QVT Financial declined to comment.
The legal adviser to the group is London-based Ashurst. A spokesperson at Ashurst declined to comment.
The group has been in contact with Dubai World, the source said. However, Dubai World has only reiterated its previous announcement of a standstill, and has not come up with any further proposals, the source added.
SIZE MATTERS
The bondholders' group represents "more than 25 percent" of the deal, the source said, which would be sufficient to block any restructuring deal, according to analysts.
A senior banker close to the situation said the group represented 33 percent of the debt, while other sources have put it as high as 40 percent.
However, the Nakheel issue is governed by English law, and legal remedies for the bondholders could be limited since it is not clear if Dubai courts would honour any UK judgement, legal and market sources in the U.S. say.
The Nakheel sukuk consists of trust certificates and is not strictly a bond. Dubai law also does not necessarily recognise the legality of trust certificates, the sources add.
Analysts say the usual process in a debt restructuring is for the issuer to call an extraordinary general meeting (EGM) or propose a resolution to debtholders in advance of the final maturity date, and this has not happened.
The Nakheel bond was trading as high as 110 before the standstill announcement but has since fallen below 50 cents on the dollar. It was trading around 50 on Tuesday.
Analysts say the trading level can reflect investors' expectations of the size of the "haircut", or loss, that investors may incur as a result of the restructuring.
However, they add that a restructuring offer is normally more favourable than prevailing debt trading levels, in order to win over investors.
"A haircut in the area of 40-50 percent is necessary to have a notable long-term effect in the total external debt dynamics," said analysts at Morgan Stanley in a client note.
The bondholders' group operates separately from a bank creditor committee which met Dubai World on Monday.
The creditor panel consists of London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, along with local lenders Emirates NBD and Abu Dhabi Commercial Bank.
However, analysts expect that bondholders and creditors will strike a deal with Nakheel.
"The outcome of this multilayered conflict is impossible to predict, but given the financial and reputational stakes involved, a compromise solution, combining for example a moderate haircut with maturity extension in return for higher yield, may be the most likely option here," said analysts at Goldman Sachs in a client note.
"Outright default would be sub-optimal for all parties involved." (Reporting by Carolyn Cohn and Tessa Walsh in London and Matthew Goldstein in New York, editing by Will Waterman)