DIC creditors seek better terms

Creditors of Dubai International Capital are demanding more stringent terms on the extension of a $1.25 billion loan that originally came due in June.

Creditors of Dubai International Capital (DIC), an arm of the government-owned conglomerate Dubai Holding, are demanding more stringent terms on the extension of a US$1.25 billion (Dh4.59bn) loan that originally came due in June. The two sides are understood to be some way from reaching a final settlement on the loan, a deal seen as a key step towards restoring order to Dubai's finances after Dubai World reached a pact last month to restructure about $24.9bn of debt.

The acceptance of the Dubai World deal by 99 per cent of the government-owned group's bank creditors gave a boost to local stock markets and sent down the cost of insuring Dubai debt against default. It also laid the groundwork for Dubai's sale last week of $1.25bn of government debt, its first round of fund-raising since Dubai World said it would seek a standstill on debt repayments in November. The debts of DIC and Dubai Holding have now begun to take centre stage as confidence in the emirate's economic recovery begins to take hold.

DIC is a private equity group that owns stakes in companies including the UK budget hotel chain Travelodge and a minority stake in EADS, Europe's largest aerospace group. A source familiar with the talks said DIC was pushing for a new five-year loan with an interest rate based on the London interbank offered rate (Libor) plus 0.85 percentage points. But creditors are understood to want much higher interest rates, according to observers, plus asset sale tests in the second and fourth years of the new five-year loan.

Under such tests, if DIC were to fail to sell off assets as envisioned under loan restructuring terms, lenders could declare the company in default and seek recompense in courts. "The creditors are putting up a fierce fight," one source said, adding DIC's assets were last valued at $2.7bn and it had debts of slightly less than that amount. A government spokeswoman, however, said discussions between DIC and its lenders over the new loan terms were going smoothly.

After initially extending repayment on the loan until the end of last month, DIC recently received the go-ahead for a further extension until the end of next month as talks progress. "Our discussions with DIC's lenders to agree a consensual longer-term plan have been progressing well and we are currently discussing the term sheet, which is a very positive step forward," the spokeswoman said. "The maturity deadline has been extended to the end of November to enable us to move through the documentation stage. In the meantime, DIC will continue to service its debt obligations as normal."

As it negotiates with creditors, DIC is already selling off some assets it acquired between 2005 and 2007, during the height of the global credit boom.