Dubai Group LLC, the investment company owned by the emirate’s ruler, proposed paying interest of 1 percent to 2.5 percent in a $6 billion debt restructuring proposal, three people familiar with the plan said.
Four different interest rate classes have been proposed depending on the currency and the type of creditors, two people said, declining to be identified because the information is private. Secured creditors, whose loans are backed by assets, will be repaid principal in three years, according to the people. Banks that offered partially secured and unsecured loans will be returned principal in 12 years and receive additional interest at the end of the loan term, they said.
A spokeswoman for Dubai Group declined to comment.
Dubai Group, controlled by Dubai Holding LLC, is one of several companies in the emirate seeking to restructure loans after property prices and asset values slumped and credit markets froze. Dubai World, one of the sheikhdom’s three main state-controlled holding companies, reached a deal in March 2011 with about 80 banks to delay payments on $25 billion of debt.
Dubai Group appointed eight banks to represent creditors in two committees in 2011. Paris-based Natixis SA’s Nexgen unit and Dubai-based Mashreqbank PSC (MASQ) make up the committee of secured lenders. Royal Bank of Scotland Group Plc and Emirates NBD PJSC (EMIRATES) lead the group of partially secured and unsecured lenders.
The overall restructuring proposal is in three parts, one for a $300 million fully secured Islamic syndicated facility managed by Citigroup Inc. (C), another $1.1 billion secured facility provided by Natixis and a third for the $4.6 billion owed to the partially secured and unsecured lenders, one person said. Banks with the most assets backing their loans will receive the highest interest and discussions are under way with the partially secured and unsecured lenders, he said.
Financial advisers Lazard Ltd. (LAZ), law firm Clifford Chance LLP and accounting firm KPMG are advising on the deal.
The below-market interest rates will lead to losses for banks. Emirates NBD, the United Arab Emirates’ biggest bank, said in October it set aside 950 million dirhams ($259 million) to cover losses from 4.8 billion dirhams of loans to an entity that was restructuring debt, which it indicated was Dubai Group.
Dubai Group, which owes another $4 billion, invests in financial services and owns property in the U.S., according to its website. It holds stakes in companies including Dubai-based investment bank Shuaa Capital PSC (SHUAA), Cairo-based investment bank EFG-Hermes Holding SAE (HRHO), and BankMuscat SAOG (BKMB) in Oman.
In its pursuit to transform into a tourism, trade and financial services hub, Dubai and its state-owned companies amassed debt of $129.3 billion, or 149 percent of economic output in 2011, Bank of America Corp. Merrill Lynch estimates show. The emirate was rescued from the brink of default in 2009 by a $20 billion loan from the central bank and Abu Dhabi.
Still, Dubai has sealed successful restructuring deals. Dubai International Capital LLC, another private equity company owned by Dubai Holding, reached an agreement earlier this month to restructure $2.5 billion of loans.
Drydocks World LLC, which owns the Middle East’s biggest shipyard in Dubai, received approval from an “overwhelming majority” of creditors for its $2.2 billion debt restructuring proposal, the state-controlled company said April 5.
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