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Dubai’s Zabeel Investments’ $1.6B debt talks stall

Dubai’s Zabeel Investments’ $1.6B debt talks stall

After more than a year, debt talks go nowhere; Dubai government provided bailout funds in 2009; CEO left company; some board members, chairman resigned

January 24, 2012 1:33 by

Debt restructuring talks at Zabeel Investments, owned by the crown prince of Dubai, have ground to a halt with multiple loans in limbo and few assets available for sale, leaving banks facing steep haircuts, five people familiar with the matter said.

Zabeel, which has hospitality, property and private equity assets, owes approximately 6 billion dirhams ($1.6 billion) to mostly local banks. Despite nearly 18 months of talks, little progress has been made, four sources involved in the process told Reuters.

Despite its high-profile ownership, Zabeel — which received two loans in 2009 from the Dubai Financial Support Fund (DFSF), including one to help meet a coupon payment — has not been allocated more funds by the DFSF nor has it formally requested government help.

“The banks can talk about it all they want but it is not going to get them anywhere,” a Dubai-based banker with knowledge of the matter said, citing the limited legal options available to lenders. The banker spoke on condition of anonymity due to the sensitivity of the subject.

Three sources involved in the process said it was highly unlikely that legal action would be brought against Zabeel by lenders.

Zabeel declined comment.

Zabeel’s chief executive left the firm in August, while several board members, including the chairman, resigned in April.

Independent investment bank Moelis & Co was appointed to advise the firm on its financial position in mid-2010. Moelis declined to comment.

Zabeel, which once had stakes in Sony Corp and planemaker EADS, has offloaded assets, including businesses in Las Vegas, to keep up interest payments, two financial industry sources said.

The asset sales, which included some pledged as collateral for loan facilities, have infuriated banks which have been powerless to act even as the firm subsequently halted interest payments, putting it technically in default, the financial industry sources said.

Banks have sent multiple notices demanding repayment, one of them added. But no legal action has been taken and it was not known whether such a step would succeed in a Dubai court.

Asset sales stopped in November, making it unclear how the company will finance itself and its future debt payments. It was not known what other sources of funding Zabeel might tap.

Zabeel, formed in 2006 and owned by Sheikh Hamdan bin Mohammed al-Maktoum, 29, owns the exclusive Zabeel Saray hotel on the Palm Jumeirah man-made island. The company has sold some of the high-end villas developed as part of the complex.

Like many Gulf investment vehicles, Zabeel was hit hard by the 2008 global financial crisis.

Dubai Holding, the investment vehicle owned by the crown prince’s father and Dubai ruler, Sheikh Mohammed bin Rashid al-Maktoum, has restructured a number of branches of the company.

The largest of these, the $10 billion reorganisation of Dubai Group, is continuing.

Meanwhile, agreements have been secured for debt worth $2.4 billion and for $555 million belonging to Dubai International Capital and Dubai Holding Commercial Operations Group respectively.

However, despite being the crown prince’s firm, the negotiations for Zabeel have gone largely under the radar as much of the debt is bilateral and not publicly disclosed.

The aid package from the DFSF, set up to help ailing firms in the emirate, was awarded at least six months before Dubai World shook global markets with its call to restructure $25 billion of obligations in November 2009.

No figure was given by the sources as to the amount of support given, although it is said to be separate from the 6 billion dirhams debt pile.

The bilateral nature of the loans also leaves banks, especially local institutions, in a worse position.

“Aside from a 400 million dirhams syndicated loan, the majority of Zabeel’s obligations are bilateral loans which are practically impossible to trade in the secondary (market) — if a trade had happened, it would have made a lot of noise,” Ahmad Alanani, director, senior executive officer at Exotix, said.

Sources said that among local creditors are Abu Dhabi Commercial Bank, Commercial Bank International , Commercial Bank of Dubai and Emirates NBD .

HSBC, which had one of the largest exposures to Dubai World, is among the few international creditors.

One bank to have secured a debt deal with Zabeel is Royal Bank of Scotland, which took an 80 percent haircut on a deal involving a hospitality venture in Las Vegas, two banking sources said.

Zabeel is now using this 20 cents on the dollar figure as a negotiating position with the other banks — something the banks are unwilling to accept despite their limited options.

“This has set the benchmark for Zabeel’s negotiations, with the company saying ‘if RBS took 20 cents on the dollar, why won’t you?’,” the Dubai-based banker said.

“Taking an 80 percent writedown on $150 million is a much different story.” ($1 = 3.6730 UAE dirhams) (By David French; Additional reporting by Mirna Sleiman and Dinesh Nair; Editing by Amran Abocar and David Holmes)

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