Debt restructuring in Greece and Dubai

It’s useful to compare and contrast the terms of the Greece debt restructuring as outlined by the Institute of International Finance and the Dubai World debt restructuring of last year.  In both cases there is a mix of options for the new debt with varying coupon structures and levels of government guarantee.  The Greece case is a little more blunt about the discounted nature of the new debt, but there are enough options so that outright haircuts to principal can be avoided if a creditor so wishes — the impact is being achieved in net present value terms.

Thus there is a sense in which Dubai and its bailout partner Abu Dhabi were ahead of the EU curve.  This is despite considerable differences in circumstances: Dubai was restructuring corporate debt of state owned companies that were perceived as having a government guarantee but in fact did not, whereas Greece is restructuring sovereign debt.  The government of Dubai succeeded in walling off its own sovereign debt burden from its kinda-sorta-maybe legacy guaranteed liabilities — Ireland, take note — and was even able to issue new sovereign debt this year, without a credit rating!

Also in Dubai, the commercial banks grumbled but ultimately took the offer.  Which brings up another issue.  When the government of Dubai needed to restructure debt to commercial banks, it brought in restructuring specialists who came up with the offer to the commercial banks.  When the EU needed to restructure the Greek debt owed to commercial banks, they brought in, er, the commercial banks.  There must be synergy in having poacher and gamekeeper as the same person.

11 thoughts on “Debt restructuring in Greece and Dubai

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