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Exclusive: Dubai Group signs $10 billion debt restructuring deal - sources

The Emirates Towers, which house the headquarters of Dubai Group, are seen on Sheikh Zayed road in Dubai May 9, 2013. REUTERS/Ahmed Jadallah
The Emirates Towers, which house the headquarters of Dubai Group, are seen on Sheikh Zayed road in Dubai May 9, 2013. REUTERS/Ahmed Jadallah

By David French

DUBAI (Reuters) - Dubai Group has signed a $10 billion debt restructuring deal, two sources with knowledge of the matter told Reuters, marking the end of a perilous period which saw the emirate risk collapse under a mountain of debt obligations.

The unit of Dubai Holding , the investment vehicle of Dubai's ruler, was one of a number of state-linked entities which borrowed heavily from banks to fund an acquisitions spree during the boom years of 2006-08.

But as credit markets dried up following the global financial crisis and a local real estate bubble burst, they found themselves unable to manage their obligations and were forced to renegotiate tens of billions of dollars of debt.

Dubai Group finally brought an end to more than three years of negotiations about its debt pile when it signed the restructuring deal on Wednesday, the sources said, speaking on condition of anonymity as the information is not public.

Its lenders, which include France's Natixis and Dubai's Emirates NBD , still have to sign and return the last piece of documentation and this should happen in the next few days, bringing a formal conclusion to the long-awaited deal, the sources said on Thursday.

"It's not perfect but it's a major milestone for both the emirate and the banks who were exposed to the Dubai government-related entities," said one of the sources at a creditor bank.

Dubai Group declined to comment.

Concluding a deal would allow Dubai to put behind it a period which led to a $20 billion bailout from Abu Dhabi and questions over the city-state's economic viability, with the focus now on advancing the economy and generating the revenues to meet revised debt schedules and fund new mega-projects.

Dubai Group had been in negotiations with creditors since late 2010 after it missed payments on two debt facilities, with talks going on long after many state-linked entities had concluded their own restructurings.

The process to get an agreement has been hit by various delays as dozens of lenders and Dubai Group jostled to secure their own interests in the deal.

This included an attempt to seek remedy through the courts - a rare occurrence in the Gulf - which resulted in some lenders, including Royal Bank of Scotland and Commerzbank , accepting 18.5 cents on the dollar to exit the restructuring process.

Much of the uncertainty was due to insolvency regulations in the United Arab Emirates being untested and complex, meaning all involved had no framework to structure their negotiations.

ECONOMIC REBOUND

Dubai Group was still dealing with its debt problems long after the emirate began rebounding from the 2009 crisis, with property prices in 2013 among the fastest-growing in the world and the value of the stock market doubling during the course of the year.

The local economic pick-up has helped asset values to recover, allaying some of the fears over whether prices could ever rebound enough to fully repay lenders. During the negotiating period, Dubai Group's holdings in Kuwait's Global Investment House and Cyprus Popular Bank were decimated by their own restructurings, for example.

The final deal involves creditors extending maturities for up to 12 years, with the length of time dependent on the level of security against specific debts, so Dubai Group's assets can recover in value before being sold to meet its obligations.

Asset sales have already taken place in 2013, such as offloading credit card firm Dubai First and its stake in Oman National Investment Corp Holding .

The sale of the group's 30.5 percent stake in Malaysia's Bank Islam for $550 million raised enough cash to repay one group of creditors and provided more than $200 million to service interest payments in coming years.

Those involved in the restructuring are hopeful lessons have been learned following the drawn-out process, said the source at the creditor bank.

"They won't dare default again as they won't want to go through that (process) again, especially with the Expo coming up," said the source, referring to Dubai hosting the World Expo trade convention in 2020.

(Editing by Dinesh Nair and Pravin Char)

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