Sheikh Ahmed bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee and vice chairman of the Dubai Executive Council, is “positive” on talks to restructure Dubai Group’s US$6bn debts, he told Arabian Business.
Earlier this week, it was reported Dubai Group, a unit of the emirate's ruler's personal investment firm, saw an offer of 18.5 cents for every dollar rejected in favour of full repayment over a 12-year period by around 20 banks.
The 20 banks were part of a group of lenders that had provided the investment firm a US$1.5bn Islamic murabaha loan in 2008. The offer was extended to the banks after earlier being accepted by a separate group of four lenders, including Royal Bank of Scotland and Standard Chartered, which recently dropped arbitration proceedings against Dubai Group.
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.
However, Sheikh Ahmed bin Saeed Al Maktoum, uncle of Dubai Group’s owner Sheikh Mohammed bin Rashid Al Maktoum, said he was confident of a positive outcome to the ongoing talks.
“I know that they are in discussion. I hope the Dubai Group will be able to reach an agreement… which will bring that company back to strength,”
Sheikh Ahmed, who is also chairman of the Dubai Supreme Fiscal Committee and vice chairman of the Dubai Executive Council, said on Tuesday.
“I am very positive on dialogue,” he added.
Of Dubai Group's US$10bn total debt, US$6bn is owed to banks and the remaining $4bn is classed as inter-company loans.
Dubai Group’s portfolio includes stakes in Dubai-based investment bank Shuaa Capital, Cairo-based investment bank EFG-Hermes Holding and Oman’s BankMuscat.
Within the last twelve months, Dubai has launched a number of large-scale projects onto the market, including Mohammed Bin Rashid City, a complex consisting of 100 hotels, the world's biggest shopping mall and a Universal Studios theme park.
Sheikh Ahmed said he believed there was sufficient liquidity in the region to support such mega investments.
“I think what Dubai has achieved in their last bond and sukuk, the prices that they get was excellent… When there is liquidity at a good price everybody should take advantage of that and go to the market to be able to take it before it dries up.
“I think when we are talking about investment in Dubai we are very much open to investor(s) to come and invest and there is some project (s) that it is done in-house I would say
Late last month, Hani Al Hamli, secretary general of Dubai Economic Council, said Dubai had access to funding to finance these new projects.
“We do have our own resources and way to finance… We are sure that these projects will be achieved,” he said.
When pushed on where these funds would come from, Al Hamli did not go into specifics, commenting that financing would occur via sources within the UAE.
“We have our own resources in the emirates. I don’t want to disclose… This is managed by the finance department.
“When it comes to resources, we are part of the UAE and we have our own networks… There [are] neighbours who have massive natural resources. At the end of the day, [in] the UAE there is solidarity and a good governance and leadership,” he said.
In contrast to its oil-rich neighbour Abu Dhabi, Dubai's government does not have the large fiscal reserves needed to finance large-scale projects.
During the downturn, when the Dubai real estate bubble burst and prices slumped around 60 percent and development finance dried up, Dubai was forced to take a last-minute US$10bn bailout from Abu Dhabi to avoid a bond default at a state-linked developer.
"Abu Dhabi or some of its companies may be part of this mega development," an Abu Dhabi government official, who did not wish to be identified, told Reuters. “It is early days, let's wait for the devil in the details."
The recent large-scale government announcements close a year in which a number of prominent projects were unveiled, including the AED1.5bn (US$408m) Business Bay Canal project, the Dubai Modern Art Museum and Opera House District and the refurbishment of the Port Rashid terminal into an attraction centred around the QE2 ocean liner.
Many of these plans are projected to move forward straight away, but come in the midst of reports from the International Monetary Fund (IMF) which estimate that Dubai's government-linked entities will need to repay about US$9.4bn of maturing bonds and syndicated loans in 2013 and US$31bn - much of it loans that were extended during the crisis - in 2014.
Looking at the opportunities outside the UAE, World Bank economists speaking on Wednesday had mixed feelings about how the current global crises in the eurozone and the US will impact the potential for the UAE to source financing overseas.
“The world economy is very weak and you have to look at it in the proper context. You have the crisis in Europe and the risk of a fiscal cliff in the US, so there are uncertainties. If the US goes into recession it will impact the global economy in a very significant way,” Ndiame Diop, a lead economist at the World Bank, told reporters.
When asked whether this would impact Dubai’s ability to get financing internationally, he answered “absolutely”.
Farrukh Iqbal, director of the Middle East and North African region at the World Bank, was more upbeat: “Yes, there was a stumble but a recovery is happening and a few lessons have been learnt…keeping more control on what kinds of projects can be supported and how much bank lending there should be.
“In general, global liquidity seems to be in a reasonable position. The banks have a lot of money. They have become conservative because of their experiences, and that is fine too… They will all have to take each individual project and look at it carefully and look at the overall balance of the risk-and-reward situation and make decisions,” he added.