Thursday, May 09, 2013
By Asa Fitch and Nicolas Parasie
Dubai Group, an investment company owned by Dubai's ruler, has agreed to a $10 billion debt restructuring with its main bank creditors after three years of talks, potentially lifting a cloud of uncertainty that has engulfed the emirate since indebted state-linked firms were forced to seek new terms on their borrowings.
If it goes through as expected, analysts say the restructuring will be a major step in the broader reorganization of Dubai's government companies in the wake of the financial crisis. Under its terms, Dubai Group would get up to 12 years to repay its banks as it tries to sell assets and generate cash, according to a person familiar with the talks.
The deal covers $6 billion of bank debt and a further $4 billion of related-party debt is to be subordinated to banks' claims under the proposed terms.
The Dubai Group deal is one of the final chapters in the round of restructuring that took place after Dubai's property bubble burst in 2008, sending prices down by more than half in some parts of the emirate.
Dubai's critical trade, tourism and financial services sectors also slowed as large debt maturities drew near. In a report in November, Standard Chartered estimated Dubai and its government-linked companies have $109 billion of total debt, including $32.2 billion of direct sovereign debt.
Dubai World, a state-owned conglomerate instrumental in the bubble, completed a $25 billion debt restructuring in 2011. Limitless, a government-owned real estate company formerly part of Dubai World, completed a $1.2 billion restructuring last year, while Dubai International Capital, a sister company of Dubai Group, signed off on a $2.5 billion deal in April, 2012.
All of them were forced to renegotiate because the value of their assets fell and they faced debt maturities they couldn't meet at a time when banks were unwilling to extend new financing.
Dubai Group is a unit of Dubai Holding, which in turn is owned by Sheikh Mohammed bin Rashid Al Maktoum, Dubai's ruler. Its assets include stakes in prominent regional companies such as Egypt's EFG Hermes and Oman's Bank Muscat, a shopping center in Germany and a stake in Malaysia's Bank Islam.
The company will need full assent from all of its creditor banks to go ahead with the restructuring plan, and a meeting with banks is scheduled next week in Dubai. It has already overcome dissent by four banks that filed an arbitration case in London last year. Dubai Group settled the case brought by Royal Bank of Scotland, Standard Bank, Commerzbank AG and Egypt's Commercial International Bank early this year, agreeing to settle their loans at 18.5 cents on the dollar.
Although finishing Dubai Group's restructuring would be a big step in the emirate's larger restructuring story, several smaller debt deals are still in play. Zabeel Investments, a firm owned by Dubai's crown prince, is still in talks with its banks about extending debts. Dubai Holding Investment Group, another arm of Dubai Holding, is also negotiating a $1.2 billion loan restructuring.
Dubai and its companies also face major maturities next year and beyond, including $20 billion of aid extended by Abu Dhabi when the financial crisis hit. A big chunk of the debt extended in the Dubai World restructuring also comes due over the next three years.
Meanwhile, Dubai has borrowed heavily from Emirates NBD, a state-owned bank, securitized receipts from its road-toll system and took $20 billion of aid from Abu Dhabi, its oil-rich neighbor.
The emirate will be hoping its recent economic rebound will mean it can get new financing in debt markets and meet future financial obligations, said Emad Mostaque, a strategist at Noah Capital Markets in London.
"The key upshot of this restructuring is that it frees Dubai up to borrow in increased size from the broader market with confidence, something that will be essential over the next few years as it looks to refinance maturing liabilities," he said.
"Dubai has learned from some of its mistakes, but in a world where Rwanda can raise long-dated bonds at 6% Dubai seems a relatively safe bet," Mr. Mostaque said.
Dubai's main stock market index is up 34% year-to-date and has reached levels not seen since 2009.Passenger traffic at the Dubai International Airport was up 13% last year to reach 57.7 million people, according to government statistics and trade volumes at the Jebel Ali port are also on the rise. Even the beleaguered real estate market is showing signs of a rebound, according to a first-quarter report by the consultancy Jones Lang LaSalle, and residential prices went up 18% last year.
In terms of debt, in the secondary market, the yield on a $500 million Dubai government bond due in 2021, for example, has fallen steadily and is now at 3.99% after being over 5% last summer, according to Zawya.com data, just above where Italian paper of similar maturity is trading.
Write to Asa Fitch at asa.fitch@dowjones.com and Nicolas Parasie at nicolas.parasie@dowjones.com
(END) Dow Jones Newswires
09-05-13 1418GMT
