Dubai Group missed Oct payment on $330m loan; missed profit payment on $1.5bn Islamic loan
Financial services firm Dubai Group has missed two payments on separate loans in recent weeks, including one arranged by Citibank, in the latest sign the Gulf Arab emirate's debt troubles are far from over.
Sources said the company, part of a conglomerate owned by Dubai's ruler, did not make a scheduled payment on a $330m loan on which Citibank was the sole bookrunner.
"The payment on the Citibank facility in October wasn't made," said a source with direct knowledge of the matter. A second person confirmed the October payment had not been made.
The five-year loan, which matures December 13, 2011, was used to fund the acquisition of a 49-percent stake in Bank Islam Malaysia. Bank Islam earlier this year said Dubai Group was trying to sell the stake.
Two other sources familiar with the matter said Dubai Group also missed the profit payment due on a $1.5bn murabaha Islamic financing facility, in which 24 banks have participated.
Arrangers of the facility, due August 2011, include Al Hilal Bank, First Gulf Bank, Noor Islamic Bank, Qatar's Al Khaliji Commercial, Royal Bank of Scotland and Standard Bank.
"The payment hasn't come in, we're expecting details soon," one UAE-based banker, speaking on condition of anonymity, said.
"This is quite concerning; we need to show the cash [payment] in our books. Whether there will be a restructuring or not, we do not know," the banker said.
A conference call among lending banks took place on Thursday, with some lenders angry about the missed payment.
A source on the call said no decisions were made but among the options discussed was whether to send Dubai Group an official default notice on the murabaha facility.
"Murabaha is generally a series of payments due on certain dates in which the (borrower) has to repay the cost plus profit, essentially equivalent to principal and interest, according to an agreed schedule," said one Islamic finance lawyer, who asked not to be named."
"If they miss one of their scheduled payments under the facility that is a breach of obligation, which is a default."
Islamic bankers said while contracts vary - a grace period could be written into a murabaha - customarily there would be no such provision in a deal, making a missed payment a default.
Dubai Group, owned by Dubai Holding, said on Thursday it had set up a co-ordinating committee of lenders to discuss its debt obligations, adding it would continue to service its debt.
"These discussions are making good progress and Dubai Group is confident of a positive outcome that is beneficial to all stakeholders," it said.
Dubai Group was not immediately available for comment on the missed loan payments.
A banking source, speaking on condition of anonymity, said the bulk of the exposure still lay with the top eight banks on the deal. "We knew they were in difficulty, in significant financial trouble," the source said.
Dubai Group, which focuses on banking, insurance and investments, has stakes in Dubai-based investment bank Shuaa Capital, Greek group Marfin Investment Group and Australian company Citigold Corp.
Its announcement of a co-ordinating committee comes on the heels of a raft of restructuring in the Gulf Arab emirate after a property collapse combined with the global downturn
Flagship conglomerate Dubai World reached a $25bn restructuring deal with creditors in September.
The state-linked firm shocked global markets last November when saying it was unable to meet almost $25bn in debt obligations. Dubai World's Nakheel property unit narrowly avoided default on an Islamic bond last year after a last-minute cash injection from neighbouring emirate Abu Dhabi
"For the last year, everybody has been in the dark and struggling to figure out what is going on," a Dubai-based banker said. "It is useful to know steps are being taken to address debt issues because it gives a little comfort to the market."For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
In today's modern world Dubai is the name of pride. Many FIT and tourist groups have been travelling to Dubai as a symbol of Successful modern city. However when people come across these kind of real newses; it hurts the market condition. As far Dubai Holding or Dubai Group are all same. It's like same water in different bottles.
I think it's time for Dubai to United the Arab Emirates and find a clear solution for the financial critical challenges.
I think this is another conspiracy to tarnish the Dubai image.
In Dubai we have the state of the art infrastructure..how can it be that Dubai has not paid?
It has absolutely nothing to do with conspiracy. Dubai Group did not pay, thats a fact. Ignoring this fact does not help. Nobody wants to tarnish the image of Dubai, the image is already tarnished. And nobody but Dubai itself is responsible for that!
Ahmed, you are a funny man!!!
Your comment is so short sighted and ill conceived it is laughable.
Good luck - I think you'll need it.
Ahmed, you are a legend! I just hope what you said was tongue in cheek and not genuine, because it's a great joke!
In the mass tourism market the Dubai image is still intact, people want to see a huge concrete building, ride on a camel and whatever.
In the business and financial community its the synonym for a place where you do not want to go for long time.
Infrastructure is nice, but you need people to use and pay for it in order to maintain it. Tourism only will not be enough.
Ron, you are so right. But as the bottles are almost empty, it is difficult to squeeze out the last drops of water for the thirsty banks and creditors. All governmental debtors are playing out and hope, someone would come to help them out. But more than 100 billion debt is not so easy to repay.
There seems to be a limited number of solutions here: a quantitative easing programme delivered by the Federal Government, a mega-loan from Abu Dhabi on condition of a EU style austerity programme. No international investments and sell off assets like the Dubai Metro, Jebel Ali Freezone, DIFC, Technology and Media zones, major hotels etc.
The problem is as each debt skeleton emerges from the Dubai cupboard, the more reluctant banking institutions become to lend more money, especially if they keep having to take haircuts, subscribe to renegotiation of loan terms. There is no visible breakeven in sight as in, "we earn this much per annum and this is what we have to pay out". Dubai World is one scenario declared as covered, but the calculations relative to Dubai Holding never came into that equation, so how will the DH debt be covered in another restructure?
Trying to kickstart the property sector by continuing to build is not the solution, it dilutes the existing asset values further.