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When Dubai World's $25 billion collapse was averted courtesy of some substantial restructuring, the emirates most cumbersome issue in its debt mound was resolved and the hope is it can stave off another year of negative growth. Prior to any resolution, the Gulf state was stuttering....

When Dubai World's $25 billion collapse was averted courtesy of some substantial restructuring, the emirates most cumbersome issue in its debt mound was resolved and the hope is it can stave off another year of negative growth.

Prior to any resolution, the Gulf state was stuttering. Going back to early 2010, with the possibility of huge potential defaults looming, issuers and banks underwent a substantial period of consolidation and review, looking at their commercial paper and debt instruments and calculating to what extent they were exposed. This cautiousness correlated in the types of mandates capital market practices received. One lawyer explains: "There were consent solicitations, restructurings that were consistent with the overall view of the market that was; let's have a look at what we've got. Is it credit worthy? Can we get rid of it? Does the issuer need more time? Does the borrower need more time?"

Yet, even prior to Dubai World's final sign-off with its creditors in March 2011, things had begun to stabilise and with issuers less hesitant the debt markets were the chief beneficiary. "We've witnessed a pick-up in new issuances and extension to new issuances that are about to mature," says one lawyer. One issue, which lawyers felt bodes well for the future of the regional markets, was property giant Emaar's successful placing of a $500 million convertible bond. "I'm actually quite excited about convertibles, its quite an attractive tool to raise money for companies when they perhaps otherwise wouldn't," explains one capital markets lawyer.

Regional unrest has, however, stunted the debt markets resurgence by deterring issuers and investors. "It had started thawing out probably in the last half of 2010," says one lawyer. "It's gone in to shock again now because they're still waiting. A lot of the deals that people did in 2010 were in markets like Egypt, which is now looking in-flux, and that spilled over in to a lack of confidence in the regional market, which we're still experiencing. We're not expecting 2011 to be a particularly busy year for transactions generally in the market." Ironically the UAE will almost certainly indirectly prosper from the unrest in the region in the long-term as direct investment from Egypt, Bahrain, Libya and Syria will be diverted in to what is widely regarded as the region's most developed and politically stable country.

Activity on the equity side is yet to resurface with investor appetite in the region at a low ebb. "The equity market has been very quiet there have been some transactions but unfortunately very few have come to market. We've acted on several deals that have been pulled just before pricing," says one partner. The notable exception was Dubai Telecom's $272 million rights issue in June 2010, which was the first in the country for five years. But any expectations for the equity market engendered by the deals success were deflated when Axiom Telecom pulled its IPO in the same period after tepid interest from Middle Eastern institutions.

One area that has continued unabated is restructuring and refinancing. Now a prominent fixture in Dubai, post crisis, all banking and financing lawyers have found themselves overwhelmed with work. "We would have to say that restructuring is the area that has kept us busiest over the last 12 month," says one lawyer.

"If you look back a year there was just restructuring beginning to take off. We had the Dubai World deal, this time last year, since then we've picked up Dubai Group, Dubai International Capital, Limitless, Global has closed in Kuwait, Nakheel and Dry Docks, which is part of Dubai World, Dubai Aerospace and Enterprise, Amlac, a mortgage provider. So there's just lot that just keeps coming in and we've got real momentum on that side of it," says another partner, who said the firm experienced a 15% increase in profits on the previous year on the back of these transactions.

At the peak of the crisis, when Dubai's fate seemed sealed, the issue of insolvency was raised. Now the market has progressed, contingency plans in the form of legislation are being considered should the economy decline again. When it would be implemented, in a country that moves notoriously slowly on new legislation, was not even speculated on. "It's hugely complex, if you think an insolvency law touches on so many other laws and a judicial system; you need buy-in from an awful lot of people before you can actually get an agreed document," says one partner.

New lending is still down with very few banks having the requisite liquidity. "Relatively few banks are actually lending because very few have got any money. It's the like of Standard Chartered and HSBC the banks that have had a long term presence here but the new guys are struggling." Credit is still available to those with well-established relationships and a strong credit history, but even then the banks remain cautious. "There's a certain amount of new money but it's heavily structured. In the old days they would have handed out $100 million without any questions. Now it's pawed over, covenants asked for, lot's of security. Even for smaller deals everything is being thrown into the kitchen sink." Another agrees: "In terms of borrowers it tends to be those that have good relationships with the banks. The banks are doing their due diligence a lot more and not just throwing money at name lending institutions," says another lawyer. Lawyers do note that the syndicated market and trade financing is becoming more common but again restricted to particular banks.

Deals with conventional and Islamic tranches, which tap liquidity of all funding sources, have become commonplace. "Multi-currency, Islamic/conventional, a bit more structured so as law firm you have to be able to do the Islamic bit, you have to be able to do the conventional, so they are becoming, particularly large orders, more structured," remarks one Islamic finance partner.

At its most active since the crisis, project finance has been filling the void left by the absence in lending. Multibillion deals are also resurfacing in the region, with the $14 billion Jubail Oil Refinery in Saudi the most substantial. "We've seen the jumbo projects coming back to the market and by virtue of those jumbo projects the sponsors need to tap in to as many different funding sources as possible," says one lawyer. Another agrees and elucidates further: "It's taking much longer now because you've got an Islamic tranche, we'll have PCAs, people are scratching around for liquidity. You tend to get a large number of finance providers as well. People are generally, having to get a combination of different loans rather than just one."

In 2010 the mid market M&A was hit hardest by the ramifications of the crisis with acquisition finance having dried up and banks preoccupied with more pressing matters. "I think Abu Dhabi was distracted with how much it would cost them to bail out Dubai and also I think there were a lot of infrastructure projects that have taken up resources," explains one M&A practice head. The big ticket outbound M&A deals, where the parties had no need for leverage, were less affected but similarly this market was subdued.

There is a consensus that private equity work is more prevalent: "We think it's coming back again with a vengeance," says one partner. In the corporate arena, firms envisage this will provide a reliable deal-flow in the coming 12 months. Another agrees: "We are on what we think are the first two leveraged private equity deals in the Dubai market at the moment."

Commentators forecast a good year in Dubai for 2011, with many noticing an uptick on a meagre 2010 with more surety about the health of the economy. "It's been surprisingly busy. I think most external commentators expected things to be quiet, particularly since the political unrest came about. But whilst we've seen deals put on hold, certain deals being in effect cancelled, others continue to see the region as being ripe for investment," says one partner.