DUBAI: Investment firm Dubai Group’s assets are worth just a fifth of its $10bn of debt, sources involved in its restructuring said, signalling creditors signing up to a debt deal may face big losses without a major improvement in values.
A unit of Dubai Holding, the investment arm of Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum, Dubai Group has a portfolio of mainly financial services assets bought during the boom years of the mid-2000s, but which have plunged in value since the 2008 global financial crisis.
After missing interest payments on two loan facilities in the latter part of 2010, Dubai Group and its lenders have been locked in what has been described by those involved as the most complex debt restructuring of a Dubai state-linked entity.
Dubai Group’s assets are currently valued at around $1.5-2bn, below the $6bn of debt owed to lenders, three of the sources said, without disclosing where they obtained the information. The other $4bn of debt is intercompany loans that are subordinate to the bank debt.
One of the sources said the current valuation was lower than an assessment carried out by accountants KPMG more than two years ago, though he declined to give details. A Dubai Group spokesman declined to comment.
Under a restructuring proposal agreed by some secured creditors and currently being considered by unsecured lenders, Dubai Group wants to extend its obligations by between 3.5 and 12 years to allow asset values to recover before sales happen.
Documentation was sent out to unsecured creditors, including Emirates NBD and Commercial Bank of Qatar (CBQ), on May 8. However, a June 6 deadline for creditors to secure a small bonus from the company by signing a deal has been extended until June 20, a fourth banking source said.
Last month, Dubai Group said it expected a deal to be signed in weeks and a source close to the firm said the aim was still to have everyone on board by the end of June.
Giving Dubai Group time would appear to be the best option for creditors. Liquidating it would be difficult due to the lack of a tested local bankruptcy law, while mass asset sales, even if possible, wouldn’t yield enough cash to meet claims.
“Creditors are aware of the financial position of the group and have extensively studied the restructuring terms,” the source close to the firm said, adding it had accumulated cash from divestments to service the debt for the coming years.
Sales made in recent months include landmark New York hotel Essex House and stakes in Oman National Investment Corp and a Turkish insurance business.
Dubai Group will initially need around $80m a year, three sources working on the restructuring said, with $70mfor interest payments and the rest for general costs.
But securing the cash to do more — to repay the original debt — will take time and a significant growth in asset values. “The group will have to grow its assets by at least 25 percent (a year) over the next five years to be able to pay what’s due,” a second source close to the company said.
For the banks involved in the restructuring, some have moved to cover themselves against difficulty. Emirates NBD has made provisions covering 54.6 percent of its $1.25bn exposure.
Reuters
