Dubai Group settles lawsuit over debt deal

  • Share via facebook
  • Tweet this
  • Bookmark and Share
Dubai Group is part of ruler Sheikh Mohammed bin Rashid al-Maktoum's business empire.

Dubai Group is part of ruler Sheikh Mohammed bin Rashid al-Maktoum's business empire.

Dubai Group, a struggling unit of the ruler of Dubai's personal investment firm, has settled with banks who brought legal action against it to secure repayment of their share of $10bn of debt, raising hopes a wider restructuring can now go ahead.

Royal Bank of Scotland, Commerzbank and South Africa's Standard Bank, later joined by Egypt's Commercial International Bank, began court moves in September after nearly two years of talks on reorganising the company's obligations failed to yield an agreement.

Under terms presented to the banks in December, Dubai Group's parent Dubai Holding - the investment arm of Sheikh Mohammed bin Rashid al-Maktoum - will buy out their debt plus that of any others in the same syndicate of lenders wishing to exit early for 18.5 cents in the dollar, said two sources with direct knowledge of the agreement.

The deal is conditional on all lenders in the group which lent Dubai Group a $1.5bn sharia-compliant loan facility in 2008 agreeing either to sign up to the wider restructuring or exit now.

Dubai Group was hit hard by the global financial crisis in 2008 due to excessive use of leverage in its investments and a sharp decline in asset values.

After missing interest payments on two loan facilities in 2010 it spent years trying to persuade its lenders to extend repayment deadlines so that its asset values could have time to recover before it was forced to sell them to pay back debts.

The Dubai government walked away from negotiations in January 2012, dashing hopes of state-backed aid.

With the threat of legal action out of the way, a conclusion to Dubai Group's longstanding restructuring is expected in the coming weeks, with final documentation set to be sent to lenders next week, a third banking source said.

"Everyone needed to see Dubai Group get close to a deal with other creditors before this final piece of the jigsaw was tackled," the third source said.

Dubai Group declined to comment.

Under the terms of Dubai Group's wider restructuring, creditors are being asked to extend their obligations for between 3.5 and 12 years, depending on the assets secured against their exposure, to allow Dubai Group's assets to recover in value before divestment.

The settlement could embolden other creditors seeking concessions in future restructurings. The lawsuit was a first and marked a major change in the way lenders have dealt with Dubai sovereign-linked debt.

Of Dubai Group's $10bn total debt, $6bn is owed to banks and the remaining $4bn is classed as inter-company loans.

Dubai Holding, which has rescheduled some of its own debt - a $555m facility in 2010 - and seen obligations restructured at its Dubai International Capital arm, has been showing an improved financial picture in recent months thanks to land sales and a reduction in contractor obligations, a JP Morgan note published January 8 said.

Related:
Companies
Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

Enter the words above: Enter the numbers you hear:

All comments are subject to approval before appearing

Further reading

Features & Analysis
Women edge into Gulf boardrooms as economies, societies shift

Women edge into Gulf boardrooms as economies, societies shift

Amina al-Rustamani, CEO of TECOM Investments, is leading the...

Dubai mulls rule change to lure more domiciled funds

Dubai mulls rule change to lure more domiciled funds

Proposed rules would create a new class of funds in the Dubai...

Gulf's rift over Qatar may slow investment, reforms

Gulf's rift over Qatar may slow investment, reforms

Analysts suggest dispute may not hurt immediately but could impact...

Most Discussed
  • 54
    Three UAE women attacked with hammer at London hotel

    I really feel that Arabian Business.Com should now close this comments page. This should be all about sympathy for the families not what it is/has turned... more

    Wednesday, 16 April 2014 1:06 PM - Adrienne
  • 51
    Why Dubai isn't a plastic city

    What is definitely not a plastic city. The Arabs have a culture dating back to several centuries. 50 years back Dubai was just a fishing village. Today... more

    Tuesday, 8 April 2014 3:49 PM - P. MADHUSUDAN
  • 48
    DMCC boss Ahmed Bin Sulayem entertains Robert Mugabe in Dubai

    @fga ''However today, simply because he decided to dispossess a few white farmers of their land and redistribute to the poorer indigenous blacks'' more

    Sunday, 13 April 2014 3:02 PM - Matt Williams