Dubai Group's $10bn debt plan revealed

Top official says agreement for investment vehicle owned by Dubai ruler expected within 6 weeks

The Dubai Group investment firm said on Thursday it expected a $10-billion restructuring of its debt within weeks, sealing the Gulf emirate's recovery from a financial crisis that brought it to the brink of default.

A unit of Dubai Holding, the investment arm of the ruler Sheikh Mohammed bin Rashid al-Maktoum, Dubai Group has been in talks with bank creditors for nearly three years, since the global credit crunch savaged its portfolio of assets.

Terms of the proposed deal, the last big debt restructuring that remains to be agreed by local entities in the wake of the crisis that gripped Dubai in 2009, have been sent to bank creditors for their final approval.

"We are now nearing the end and are confident that all parties will work with us to finalise the restructuring by early summer," chief executive Fadel Al-Ali said in a brief statement.

Banking industry sources, speaking on condition of anonymity because of the commercial sensitivity of the issue, confirmed to Reuters that they were nearing agreement on plans that would delay repayments by up to 12 years and give creditors seats on the board; but they cautioned that it was not yet a done deal.

"The alternative is the deal will be brought down," said one of the sources. "But banks will have to ask themselves, 'Would this be a good thing for us and for Dubai if it fails?'"

There was little reaction in financial markets because many investors have been expecting an eventual agreement. But Chavan Bhogaita, head of the markets strategy department at National Bank of Abu Dhabi, said it was important for Dubai's future.

"The conclusion of this restructuring would remove substantial uncertainty and certainly be positive for investor sentiment towards the Dubai story in general," he said.

Dubai, one of the seven United Arab Emirates, boomed in the early part of the last decade as a banking and business centre, building the world's tallest skyscraper, an indoor ski slope in the desert and other symbols of conspicuous wealth.

But the global credit crisis halved the emirate's real estate prices, forcing state-linked companies such as Dubai Group to restructure tens of billions of dollars in debt. In 2009, the emirate needed $20 billion of emergency loans from neighbouring Abu Dhabi to avoid defaulting on its debt.

Over the past year, Dubai's property market has started to recover, partly because of a flood of money into the emirate from investors seeking a safe haven from unrest elsewhere in the Arab world since 2011. This has supported a dramatic recovery of consumer spending and business confidence in Dubai.

Dubai Group owes about $6 billion to banks, mostly from the Gulf and Egypt, including Dubai's own Emirates NBD and Mashreq. France's Natixis also has a big claim against the company. Dubai Group owes about another $4 billion to Dubai Holding, which is subordinate to the bank debt.

Ahmad Bin Byat, chief executive of Dubai Holding, told Reuters that after the restructuring Dubai Group's board would include representatives from creditor banks and shareholders, as well as independent members.

A Dubai Holding spokeswoman added: "Creditors will have an increasing say in the operation of Dubai Group through the board representation. However, creditors will not receive any equity. Dubai Group ownership will remain with Dubai Holding."

Creditors are being asked to delay repayment for between 3-1/2 and 12 years, to give Dubai Group's assets time to recover in value before divestment. For unsecured creditors, who have been asked for a 12-year extension, there is an option to be repaid after five years, albeit at a discount.

Dubai Group's assets include 14.7 percent of Oman's top lender, Bank Muscat, and 18 percent of Egypt's EFG Hermes. It also owns part of Borse Dubai, which has 20.6 percent of the London Stock Exchange.

A successful restructuring of Dubai Group would not mark an end to all financial pressures on Dubai. The emirate survived its crisis largely by pushing obligations of state-linked firms several years into the future; many of those debts will now fall due between next year and 2016.

Standard Chartered bank estimates Dubai and its government-related entities will have around $48 billion of obligations coming due in that period, and the emirate has not yet outlined clearly how it will raise all of the money.

Nevertheless, strong bond and stock prices in Dubai suggest investors are confident it will find the funds it needs.

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