Company is also asking its 26 creditor banks to extend loan maturities to five to six years - sources
Dubai International Capital, a buyout company owned by the Emirate, is offering banks interest of about two percent on new loans as part of a $2.6bn debt restructuring, two people with knowledge of the talks said.
The company is also asking its 26 creditor banks to extend loan maturities to five to six years to allow asset prices to recover, said the people, who declined to be identified as the discussions are private.
Lenders are in turn seeking a guarantee from the government to make up any losses if money raised from the sale of Dubai International’s assets isn’t sufficient to repay the loan principal, the people said.
Dubai Holding Commercial Operations Group’s 4.75 percent bond due 2014 yields 11.9 percent on Tuesday, according to data compiled by Bloomberg. Both Dubai Holding Commercial Operations and Dubai International, which owns stakes in budget hotel chain Travelodge Hotels Ltd. and medical imaging company Alliance Medical Ltd., are units of Dubai Holding.
The below-market interest rate will push Dubai International’s creditors to book provisions for loan impairments. Lenders to state-owned Dubai World, which is paying a similar interest rate as part of its $24.9bn debt restructuring, have set aside 10 percent to 15 percent of the value of their loans to the company to cover losses.
An official at Dubai International Capital declined to comment.
Dubai’s state-owned companies are struggling to repay loans as the worst financial crisis since the 1930s froze credit markets. Dubai World, which owns port operator DP World Ltd., received approval from creditors to alter terms on $24.9 billion of debt, a person with knowledge of the deal said October 27.
Dubai Holding Commercial, which includes luxury hotel chain Jumeirah Group LLC and property units, also has a $555 million loan that matures Nov. 30. The company extended the loan for two months until September and deferred payment for a second time until the end of November, it said September 7.
Dubai International proposed to sell assets over five years to allow their values to recover after they slumped amid the credit crisis and sought a second extension until Nov. 30 on the repayment of a $1.25 billion loan, two people with knowledge of the plan said September 15.
Six banks led by HSBC Holdings and Emirates NBD are negotiating with Dubai International on behalf of lenders on its restructuring, one of the people said.
Spokesmen for HSBC and Emirates NBD declined to comment.
The government hopes that principal lenders reach an agreement on key commercial terms by November 30 or soon after, one of the people said. If an agreement is not reached by Nov. 30 the loan would be extended, he said.