Royal Bank of Scotland Group Plc, Commerzbank AG and Standard Bank Group Ltd. (SBK) mounted a legal challenge against Dubai Group LLC after the lenders abandoned talks to restructure $6 billion of bank debt.
No viable solution has yet been reached with Dubai Group, an investment company owned by the emirate’s ruler, forcing the banks to seek legal recourse available under the loan documentation, the banks said in a joint statement e-mailed yesterday. The banks want “an agreement without formal legal proceedings and we therefore remain open to such an outcome if an acceptable commercial resolution is forthcoming,” they said. “To date, no satisfactory proposal has been put forward.”
Dubai Group, controlled by Dubai Holding LLC, is one of several companies in the emirate seeking to restructure loans that were arranged before property prices slumped and credit markets froze with the onset of the 2008 global credit crisis. Dubai World, one of the sheikhdom’s three main state-controlled holding companies, reached a deal in March 2011 with about 80 banks to alter the terms on $25 billion of debt.
“Even if one of the lenders gets a U.K. court to grant a judgment against Dubai Group, getting that enforced in this jurisdiction is likely to be far from straightforward,” Chavan Bhogaita, head of the markets strategy group at National Bank of Abu Dhabi PJSC, the U.A.E.’s second-biggest bank, said by phone today. “Ultimately, taking an entity owned by the ruling family or the government to court is unlikely to be positive in terms of your future prospects of winning further business from these or any other government related entities.”
Dubai Group is working with more than 35 banks and expects it “can reach a consensual agreement,” according to a statement yesterday. “A global term sheet is now being considered by bank credit committees, a number of which have indicated their support,” Dubai Group said. “We continue to believe that this deal is in the best interests of all parties.”
Dubai Group invests in financial services and owns property in the U.S., according to its website. Its holdings include stakes in EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, Dubai-based investment bank Shuaa Capital PSC and BankMuscat SAOG (BKMB), Oman’s biggest lender.
RBS, Commerzbank and Standard Bank walked away from the debt talks in July because they were dissatisfied with the progress.
The Financial Times reported yesterday that the lenders are calling for the immediate repayment of the loans and are seeking private arbitration. In their statement, the banks didn’t specify what type of legal recourse they’re pursuing.
In 2011, Dubai Group appointed eight banks to two committees representing creditors. Paris-based Natixis SA’s Nexgen unit and Mashreqbank PSC (MASQ) of Dubai make up the committee of secured lenders. RBS and Emirates NBD PJSC (EMIRATES) were leading the group of partially secured and unsecured lenders.
Dubai Group’s creditors are seeking an option to be repaid early under the 10-year debt restructuring, with an exit clause that can be exercised after five years, three people familiar with the talks said in July. Banks were also seeking a guarantee that Dubai Group will have the cash to repay in case it can’t raise funds by selling assets, some of which are considered indivisible, the people said.
“If they receive a favorable judgment in London there is the prospect they may be able to attach some of Dubai Group’s international assets” Ahmad Alanani, a Dubai-based director for the Middle East at investment bank Exotix Ltd., said in an e- mail today. “This may ultimately be an exercise in futility on the part of these banks but it certainly puts the Dubai restructuring story back in the spotlight and brings some unwanted attention. I think Dubai Group is better served bringing these banks back to the negotiating table.”
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