Arab investors mull legal action over $516m fund

Arab investors in a €400m (US$516m) French property fund operated by Dubai Islamic Bank (DIB) are considering legal action after claiming they have not received any dividend or audited financial statements on the fund's status since 2009.

The Al Rayyan II French Property Fund was launched in 2005 and is managed by Qatar Islamic Bank (QIB) on behalf of DIB. The €400m (US$516m) fund invested in a number of income-producing properties in France and initially gave investors a yearly return of around 8 percent.

With the onset of the global recession and the euro zone debt crisis these payments were frozen in 2009, investors claimed.

Some of the French property assets were sold off in 2007, but investors claim they have not received any audited statements as to the status of the fund since 2009, claims which DIB has refuted.

Under the terms of the fund’s contract, investors can request to be provided with statements and management must provide them within 30 days after the end of the next six-month financial period.

DIB, the emirate's largest Sharia-compliant lender, is currently asking investors to agree to a further two-year extension to the fund, a move which requires the unanimous consent of the fund’s investors. Some investors told Arabian Business they are considering legal action, for alleged breach of contract, due to the lack of information from the lender on the fund’s current financial status.

“The performance of this €400m fund, which was launched before the start of the global financial crisis, has been impacted by those events, as have nearly all property funds worldwide,” a DIB spokesperson told Arabian Business.

“As distributor of the fund, DIB remains in regular contact with investors, providing them with frequent updates on the performance of the fund as soon as these are received from the fund manager, QIB.

“As communicated earlier to investors, the fund, at its peak, invested in seven properties in France; one of those properties was sold in 2007, and four other properties were sold at a later date. The fund manager, QIB, does not believe that an immediate sale of the remaining property assets would serve the interests of investors, given the continuing uncertainty in the European market.

“As communicated to fund investors, QIB believes that an extension of the term of the fund is in the best interests of investors, and that the property assets should be exited when market conditions improve.

“QIB’s intention is to fully exit all property assets by December 2014, if market conditions permit. However, this proposed extension of the term of the fund requires the unanimous consent of fund investors.”

DIB reported a flat third-quarter net profit last month. The bank made AED298.5m (US$81.3m) in the three months to September 30, it said in a statement. This compared with a profit of AED298m in the corresponding period last year.

Last week, Moody’s put DIB on watch for a possible downgrade over concerns about problem loans. The ratings agency also downgraded Emirates NBD, the emirate’s biggest bank, Commercial Bank of Dubai and Mashreq.