Dubai Group close to final deal with creditors

Dubai Group is close to sealing a US$10 billion restructuring deal with its creditors and is expected to sign the final paperwork in the next week or two, a person familiar with the situation said.

When signed, the group’s agreement with its creditors will put an end to long-standing negotiations that have lingered since the global financial crisis of 2008-09.

During the crisis, Dubai received financial support from Abu Dhabi.

The source said that the creditor banks involved in the deal included France’s Natixis and Dubai’s biggest bank, Emirates NBD. Of the $10bn debt, $6bn is owed to banks, while the remainder involves intra-company borrowings.

The source, who was speaking on condition of anonymity, was not able to give financial details of the deal.

A settlement could be good news for the creditors as well as the debtor, said Jaap Meijer, a senior analyst at Arqaam Capital, based in Dubai.

“A resolution of Dubai Group’s debt is positive for the banking sector as it puts an end to the whole saga,” said Mr Meijer. “We will have to wait and see what the financial details are but if the losses the banks end up taking [are] less than the provisions they had made, then it’s good for the banks. Banks in general are very strongly provisioned at the moment in any case.”

Dubai Group is a subsidiary of Dubai Holding, the investment arm of Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.

Dubai Group declined to comment.

The loans of Dubai Group are the emirate’s last debt renegotiations. Talks have proved particularly gruelling because of the need to reconcile creditors whose loans are backed by assets with those whose lending was unsecured.

Dubai Group’s debt talks have proved unusually fractious, with creditors including Royal Bank of Scotland, Commerzbank, Standard Bank and Commercial International Bank starting arbitration against the group in London. The settlement of that legal action allowed negotiations to resume.

The easing of Dubai’s debt troubles has coincided with a surge in tourist arrivals, a resumption of projects and a strengthening property market.

By some measures, investors appear more comfortable with the emirate’s debts than they have been for many years.

Dubai Group’s assets include stakes in Bank Muscat, EFG-Hermes, the Malaysian lender Bank Islam and hotels and shopping centres in the United States, Europe and India.

The company hired scores of Wall Street bankers before the financial crisis, but many of its highly leveraged acquisitions have since been diluted or gone sour, most notably its investments in Cyprus’s banking sector.

Banks in the region have been slowing levels of capital set aside as provisions for the costs of bad debts since the start of the year. Some are even releasing capital previously booked to deal with bad debts – HSBC Middle East unwound $61 million in provisions across the region during the first quarter of last year.

Meanwhile another arm of Dubai Holding, Dubai Holding Commercial Operations Group, which owns Jumeirah Group and Dubai Properties Group, is expected to return to capital markets ahead of a bond maturity next year that will test investor appetite for its debts.