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* Dubai World proposes to make 1st big repayment early,delay 2nd
* Strong Dubai economy may help persuade lenders
* Unclear if new interest rate, asset sale timetable wouldbe set
* Lloyds attempt to cut exposure was called off - sources
* Other banks believed to be considering divestments
By David French
DUBAI, Aug 1 (Reuters) - Economic recovery in Dubai ispushing both creditors and debtors to weigh new strategies inthe $25 billion restructuring of state-owned Dubai World, one ofthe Middle East's largest ever debt deals.
The conglomerate has begun talks to adjust a restructuringplan originally signed in 2011: it would make its first bigrepayment early, in exchange for more time before a second andmuch larger obligation needs to be repaid, two sources withknowledge of the matter said.
At the same time, some foreign banks are seeking to divestparts of their exposure to Dubai World as improvedconfidence in the emirate raises debt values to levels whichmake offloading favourable.
Lloyds, one of the banks on the committee whichnegotiated the original debt deal, attempted to sell off morethan $450 million of its exposure at the end of June, threesources said.
Other lenders are also reviewing whether to change theirexposures to Dubai World - most notably two banks which mightpotentially offload over $500 million of debt between them,according to investment house Exotix.
Dubai World and Lloyds declined to comment. The sourcesspoke on condition of anonymity because of the commercialsensitivity of the matter.
RESTRUCTURING A RESTRUCTURING
Under Dubai World's original restructuring plan, it wasscheduled to repay a $4.4 billion chunk of debt in May 2015 andan additional $10.3 billion in 2018.
The deal was supposed to allow time for the diverseconglomerate's assets to recover in value, after they were hitby the global credit crisis and a property crash in Dubai. Thiswould permit them to be sold to fund repayments to creditors.
Initially, many assets recovered only slowly and some, suchas U.S.-based luxury retailer Barneys, saw their values drop.This inhibited the sale process.
However, some progress has been made in recent months andsmall repayments have been made to creditors, under a mechanismwhich distributes cash from asset sales once a certain thresholdhas been reached.
Dubai's economic recovery has also helped, with otherstate-owned entities gaining the financial strength to take onassets from Dubai World companies, such as Investment Corp ofDubai's acquisition of the landmark Atlantis hotel.
This led one of Dubai's top executives, Mohammedal-Shaibani, to tell Reuters in March this year that Dubai Worldhad the cash to make the May 2015 repayment.
However, he also said various options involving the 2018payment would be discussed with lenders. Blackstone Group was named as an adviser to Dubai World in April.
Under plans being discussed between Dubai World, itsadvisers and senior lenders including HSBC and EmiratesNBD, the 2018 maturity would be extended to 2022, inexchange for early repayment of the full amount due next May,the two sources said.
The discussions have not so far included the full creditorgroup, and have not touched on whether a new interest rate wouldbe set on the extended 2022 maturity, or on whether a newtimetable for asset sales would be put in place, one of thesources added.
Dubai World will be hoping to use the emirate's renewedeconomic strength, boosted by a resurgent local real estatemarket and growth in core industries such as tourism, toconvince creditor banks to grant it additional time. Goodwillaccrued from the small repayments made to date may also help.
If Dubai World succeeds, it may ultimately be able to payback more of its debt with retained earnings rather than theproceeds of asset sales, allowing it to keep some key businesseswhich it would otherwise have to divest.
Other Dubai firms have already used improved lendersentiment to get better terms on their borrowings - the latestis DP World, which tripled the size of a $1 billionloan and cut its cost by a third last month.
SELLING OUT
While these talks are underway, banks with big chunks ofDubai World debt are reassessing their stances. Lloyds attemptedto secure a price above 80 cents on the dollar when it offeredto sell over $450 million of exposure at end-June, but pulledthe deal when it only got bids in the 70s, the sources said.
One of the reasons for the failure of the auction may havebeen uncertainty over whether the 2018 maturity will beextended. The British bank has around $535 million of DubaiWorld exposure in total, a July 21 note from Exotix said.
The sources didn't know the motives for Lloyds' interest ina sale but the lender, 24.9 percent owned by the Britishgovernment, is under pressure to focus on its domestic business.
"If I saw the debt reach a level which I had alreadyprovisioned against, I would sell out," said one of the sources,at a bank which has exposure to Dubai World.
Exotix said that in addition to Lloyds, a British lender wasrumoured to be eyeing a sale of $500 million of Dubai World debtand a European bank was aiming for a $50 million divestment.
Danny Reynolds, associate director at Exotix, said theuncertainty over the 2018 payment and failure of the Lloydsauction had blurred valuations of the Dubai World loans, but hewould not expect bids in this second round of attempted sales tobe as high as those presented to Lloyds.
If sales of Dubai World debt do go through, they could makethe group's effort to extend maturities beyond 2018 moredifficult. Specialist distressed debt funds could come to own alarge slab of Dubai World debt, instead of commercial bankswhich are eager to retain business relationships in Dubai andmight therefore be more willing to compromise.
Another bank watching the situation carefully is EmiratesNBD, the largest single creditor to Dubai World. The bank,Dubai's largest, has said it could reclassify its exposure tothe group as a performing loan in 2014, allowing it to reversethe provision held against it - around 409 million dirhams ($111million) of an outstanding 9.14 billion dirhams.
"We will review our Dubai World exposure in the coming timein line with the existing restructuring plan and the ongoingdiscussions that are reported to be taking place," ShayneNelson, chief executive of ENBD, told reporters on July 24. (Editing by Andrew Torchia)
