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Govt Pulls Out Of $10 Bln Dubai Group Debt Talks-Sources

Govt Pulls Out Of $10 Bln Dubai Group Debt Talks-Sources

Dubai's Supreme Fiscal Committee no longer involved in negotiations – sources; Banks see govt support as essential for debt deal - letter

February 4, 2012 1:00 by



The Dubai government has walked away from talks about a $10 billion debt restructuring of Dubai Group, leaving the firm, part of the ruler of the emirate’s personal empire, to deal directly with creditors and dashing hopes of a state-backed rescue.
Dubai’s Supreme Fiscal Committee (SFC), the high-level group that oversawDubai’s finances during the 2009 debt crisis and is headed by the ruler’s uncle, had been helping Dubai Group address debt issues that have left interest unpaid for more than a year.
But in a letter this week, Dubai Group told the banks’ committee of unsecured creditors that the SFC had ended its involvement in negotiations, and that no financial support would be coming from the government, according to two sources who have seen the letter.
“If the government has stepped away from the table, all the things which we have asked for are impossible because they (Dubai Group) don’t have the ability to give us anything,” one of the sources said.
The unsecured creditors want $2 billion in financial support – including a backstop guarantee of $1.8 billion from “the Dubai government or other equivalent quality entity” — according to a Dec. 4 letter signed by five of the six members of the committee, sent to Dubai Group, and seen by Reuters.
The letter from Dubai Group, part of Dubai Holding, the personal investment vehicle of Sheikh Mohammed bin Rashid Al Maktoum, was a response to the Dec. 4 demand.
According to the sources, Dubai Group now plans to table a proposal independently of the SFC to the creditor committee by the end of February, with a deal likely put to the rest of the unsecured group in March.
The 44-member bank group of secured and unsecured creditors consists mostly of lenders based in the Gulf and Egypt but also includes Royal Bank of Scotland andFrance’s Natixis.
A Dubai Group spokeswoman said the firm, whose mainly financial assets include stakes in Cypriot and Malaysian banks, was still in talks with lenders and “fully committed to reaching a consensual agreement reasonable for all stakeholders.”
NO GOVERNMENT, NO DEAL
Creditors insist government support is essential to any deal because the firm’s financial position — limited cash flow and assets with sharply reduced values — raised the “considerable risk” of default on a renegotiated structure.
“The banks are not expecting the government to come and write them a cheque for $6 billion,” the source said, citing the amount owed to banks. Inter-company loans within Dubai state entities account for the remainder of the group’s $10 billion outstanding debts
“(The letter) was very much a last roll of the dice in terms of the banks putting their hands up and saying we want to do a consensual deal and these are the terms we think are fair and reasonable.”
The creditors’ letter also warned a number of banks are considering legal action to secure their dues.
“We haven’t given up but there is a considerable amount of impatience,” said a second source.
Al Hilal Bank, Noor Islamic Bank and Royal Bank of Scotland all signed the letter but declined to comment. Other signees Emirates NBD and Union National Bank did not immediately respond to requests for comment.
Commercial Bank of Qatar, the sixth member of the creditor committee, which did not sign the letter, also declined to comment.
Dubai Group has not paid interest on its debt pile since August 2010, sources toldReuters in November.
The amount outstanding is likely to top $1 billion by the time any deal is reached, two of the sources said. In November, the firm said it will roll interest payments into the principal owed.
Dubai rattled global markets with its 2009 request for a standstill on flagship conglomerate Dubai World’s $25 billion debt pile.
The emirate has since completed several restructurings at state-linked entities with help from neighbouring emirate Abu Dhabi, including Dubai International Capital and Dubai World itself, while others have dragged on.
Deals which have been completed featured some form of government involvement at the table — the SFC directly oversaw Dubai World’s for instance — but many of the unresolved debt restructurings, such as Dubai World property unit Limitless, have not benefitted from such oversight.
The SFC is chaired by the ruler’s uncle, Sheikh Ahmed bin Saeed al Maktoum, who is also chairman of the state airline Emirates.

By David French
(Additional reporting by Stanley Carvalho in Abu Dhabi and Regan Doherty in Doha; Editing by Amran Abocar and Andrew Callus)



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3 Comments

  1. Tarek Aziz on February 5, 2012 7:22 am

    I know this was coming. I had commented about this in an earlier article. I am surprised that people in the UAE are still not walking up to the ground reality. A rough estimate indicates that all banks operating in the UAE have given out loans to the tune of +/- USD 38 billion. While the period 2005 to 2008 was the best for the banking business in the UAE, thereafter since then it has been a steady down fall all along. This is expected to continue upto 2015. In the next 3 years, the borrowers in general (comprising of government, private, semi government entities) have to repay an amount of USD 9 billion., and from now till the repayment of upto 2014, in the meantime they have to service the loan. Fresh investment coming into the UAE had dipped by almost 75% since the last 18 months. This means that there is no way that borrowers will be able to generate USD 9 billion to repay the banks, unless Abu Dhabi give this as grant. Save what ever you have made and leave asap.

     
  2. Haitham on February 5, 2012 8:28 am

    What a pity to hear any expat saying “leave asap”! I am an expat and i love Dubai. i believe none of us would have been here if our home countries offered us the same that Dubai is offering! i have seen many people taking loans and running away from Dubai and they all regret it now because they cant come back (to find a job opportunity that their countries is not offering now and the money they stole is finished). i’m sure Dubai and Sheikh Mohd will find a way like he always does to overcome this. We have seen him do the impossible and this is just a new challenge for him (which he will overcome for sure). We expats just nag about the “indirect tax” in Dubai and back home we pay more than 5 times this “indirect tax” for no proper services whatsoever. Europeans and Canadians pay aprox 45% tax, Americans pay maybe 30%, subcontinent cant find money to feed their families, and levant and north african arabs can barely pay the ticket and expenses to come to Dubai to find a job (myself included at one point in time)…so pls if u want to leave Dubai just go the hell out without biting the hand that fed you , otherwise stay and try to be supportive to the emirate that did us good and didn’t ask for anything that any country wouldn’t have asked for more, and remember expats you came here by choice…no one forced yo to come!

     
  3. Realworld on February 5, 2012 7:47 pm

    Neither refusing to look at reality or just complaining will help Dubai sort its problem. Dubai had a vision and have done plenty of good things in terms of infrastructure. Expats have paid and continue to pay for the economical expansion or to service the debt. Where is the issue then?. The main issue resides in the lack of secure environment for investors. This makes the tap dry. Take the property market, it could be revived in a matter of 2 to 3 month with the correct policies (back in 2009). The problem is they waited too long and till now there are no signs that autorities want to solve the pending issues or comfort the investors. Same for other areas of the economy. Dubai does have assets but they are under exploited because of lack of expertise to deal with crisis.

     

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