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 The unit of Dubai Holding <DUBAH.UL>, the investment vehicle of
Dubai's ruler, was one of a number of state-linked entities which
borrowed heavily from banks to fund an acquisitions spree during the
boom years of 2006-08.
But as credit markets dried up following the global financial crisis
and a local real estate bubble burst, they found themselves unable
to manage their obligations and were forced to renegotiate tens of
billions of dollars of debt.
Dubai Group finally brought an end to more than three years of
negotiations about its debt pile when it signed the restructuring
deal on Wednesday, the sources said, speaking on condition of
anonymity as the information is not public.
Its lenders, which include France's Natixis <CNAT.PA> and Dubai's
Emirates NBD <ENBD.DU>, still have to sign and return the last piece
of documentation and this should happen in the next few days,
bringing a formal conclusion to the long-awaited deal, the sources
said on Thursday.
"It's not perfect but it's a major milestone for both the emirate
and the banks who were exposed to the Dubai government-related
entities," said one of the sources at a creditor bank.
Dubai Group declined to comment.
Concluding a deal would allow Dubai to put behind it a period which
led to a $20 billion bailout from Abu Dhabi and questions over the
city-state's economic viability, with the focus now on advancing the
economy and generating the revenues to meet revised debt schedules
and fund new mega-projects.
Dubai Group had been in negotiations with creditors since late 2010
after it missed payments on two debt facilities, with talks going on
long after many state-linked entities had concluded their own
restructurings.
The process to get an agreement has been hit by various delays as
dozens of lenders and Dubai Group jostled to secure their own
interests in the deal.
This included an attempt to seek remedy through the courts — a rare
occurrence in the Gulf — which resulted in some lenders, including
Royal Bank of Scotland <RBS.L> and Commerzbank <CBKG.DE>, accepting
18.5 cents on the dollar to exit the restructuring process.
Much of the uncertainty was due to insolvency regulations in the
United Arab Emirates being untested and complex, meaning all
involved had no framework to structure their negotiations.
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ECONOMIC REBOUND
Dubai Group was still dealing with its debt problems long after the
emirate began rebounding from the 2009 crisis, with property prices
in 2013 among the fastest-growing in the world and the value of the
stock market doubling during the course of the year.
The local economic pick-up has helped asset values to recover,
allaying some of the fears over whether prices could ever rebound
enough to fully repay lenders. During the negotiating period, Dubai
Group's holdings in Kuwait's Global Investment House and Cyprus
Popular Bank were decimated by their own restructurings, for
example.
The final deal involves creditors extending maturities for up to 12
years, with the length of time dependent on the level of security
against specific debts, so Dubai Group's assets can recover in value
before being sold to meet its obligations.
Asset sales have already taken place in 2013, such as offloading
credit card firm Dubai First and its stake in Oman National
Investment Corp Holding <ONIC.OM>.
The sale of the group's 30.5 percent stake in Malaysia's Bank Islam
for $550 million raised enough cash to repay one group of creditors
and provided more than $200 million to service interest payments in
coming years.
Those involved in the restructuring are hopeful lessons have been
learned following the drawn-out process, said the source at the
creditor bank.
"They won't dare default again as they won't want to go through that
(process) again, especially with the Expo coming up," said the
source, referring to Dubai hosting the World Expo trade convention
in 2020.
(Editing by Dinesh Nair and Pravin Char)
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