Dubai Group in talks to restructure $10bn debt

The Dubai-Holding owned investment group plans to restructure as much as $10 billion in debt.

The Dubai-Holding owned investment group plans to restructure as much as $10 billion in debt. Satish Kumar / The National

Dubai Group is in talks with creditors to restructure US$10 billion (Dh36.72bn) of debt.

Sources close to Dubai Group said the company, a unit of Dubai Holding, aimed to restructure $6bn of bank debt alongside $4bn owed to other investors. That is $4bn more than previously announced.

Dubai Group declined to comment.

The disclosure comes amid improving investor sentiment in the emirate after Dubai World's $24.9bn debt restructuring, completed last month.

A 20 per cent rise in the stock market since the beginning of last month, increasing air passenger traffic and improving hotel occupancy are being taken as further indicators of an improvement in the health of the emirate's economy. Dubai's international trade also hit a record high in January.

But the higher liability figure for Dubai Group will come as a reminder that debts amassed by the companies in the emirate during the boom years remain a problem.

Dubai Group is part of Dubai Holding, the conglomerate owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.

Dubai Group's mandate had been to invest in financial services assets throughout the world, and it has controlling stakes in Dubai Bank and Taib Bank, alongside minority holdings in EFG-Hermes and Borse Dubai.

"The increase is possibly a surprise to the market, but each bank knows its exposure and some have taken provisions very early on," said Mahin Dissanayake, a financial analyst at Fitch Ratings.

"We knew that the group was talking to the banks about restructuring its debts, and some banks have already taken pre-emptive provisions. We expect further provisions to come through in 2011."

The increase in the size of the restructuring may result in further provisioning for the UAE banking sector, which had been expected to report lower impairment charges as banks begin to report earnings this week, analysts said.

A missed payment in November on $1.83bn of debt maturing this year and next sparked restructuring discussions with creditors last year.

Last week, Hussain al Qemzi, the chief executive of Noor Islamic Bank, which is involved in the restructuring talks and is partly owned by Dubai Holding, said Dubai Group was nearing an agreement with creditors.

Jan Willem Plantagie, the regional managing director for Standard and Poor's, the credit rating agency, said that despite the positive macroeconomic indicators, restructurings by large corporations such as Abu Dhabi's Al Jaber Group could linger throughout much of the year.

Some companies had "addressed quite a lot of their debt issues by pushing out a lot of the issues further into the future," Mr Plantagie said.

"The key pillars of the economy, transport, tourism and trade, have performed well in the past. But there are other elements, related to the real estate sector, that have been trying to restructure their liabilities."

Banks might accept an extension of loan maturities of up to seven years to allow the value of Dubai Group's assets to recover, Bloomberg News reported yesterday, citing a person familiar with the discussions.