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Dubai Group Banks Said to Reject Debt Deal Offer Made to RBS

About 20 lenders to Dubai Group LLC, which is restructuring $6 billion of debt, declined an offer to receive 18.5 cents on the dollar in favor of full repayment over 12 years, according to two bankers familiar with the plan.

None of the lenders decided to take the offer before the deadline expired last month, the bankers said, asking not to be identified as talks aren’t public. The terms were made to the group after four lenders including Royal Bank of Scotland Group Plc and Standard Bank Group Ltd. (SBK) had agreed to them earlier to end an arbitration case they had started against Dubai Group.

Dubai Group, controlled by Dubai Holding LLC, is one of several companies in the emirate seeking to restructure loans as property and asset prices slumped and credit markets froze after the 2008 global credit crisis. RBS and the other three lenders split from the negotiating group in July and started separate arbitration proceedings, settling earlier this year in favor of the 18.5 cents on the dollar offer. The group of 20 banks were then offered those terms or to wait 12 years for full repayment.

Documentation is currently being worked on to conclude the total debt restructuring accord that includes about 35 lenders and $6 billion of loans, according to one of the bankers.

A spokesman for Dubai Group, who asked not to be identified because of company policy, declined to comment.

The 20 banks were part of a group that provided Dubai Group $1.5 billion in an Islamic murabaha loan in 2008 and included lenders such as Noor Islamic Bank PJSC and First Gulf Bank PJSC. (FGB)

Investments

Dubai Group, which also owes another $4 billion to shareholders, 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), Oman’s biggest bank by assets. 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 about $15 billion of loans.

Dubai Group’s debt restructuring began about two years ago and the company will be able to preserve cash after the 20 banks decided against the cash offer, one of the bankers said.

The company last year proposed paying banks interest of 1 percent to 2.5 percent on the restructured loans and full repayment of principal over 12 years as part of the debt makeover. Secured creditors would be repaid in three years, while partially secured and unsecured loans will mature in 12 years with additional interest paid at the end of the term.

Unsecured Creditors

The original restructuring proposal was 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, a person familiar with the plans said in April. Banks with the most assets backing loans would receive the highest interest, the person said.

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 represented the secured lenders. RBS and Emirates NBD PJSC (EMIRATES) were leading the group of partially secured and unsecured lenders.

RBS stepped down as co-chair of the coordinating committee of mostly unsecured lenders in the debt talks with Dubai Group in July after 18 months of negotiations failed to progress satisfactorily, two people familiar with the matter said.

Law firm Linklaters LLP, which represents the co-ordinating committee of creditors, is drafting the debt restructuring accord, four bankers familiar with the matter said in November. Financial advisers Lazard Ltd. (LAZ), law firm Clifford Chance LLP and accounting firm KPMG are also advising on the deal.

The debt restructuring has led to loan losses at banks. Emirates NBD, the United Arab Emirates’ biggest bank by assets, said Jan. 31 it had set aside 54 percent of the value of Dubai Group’s loans, or 2.51 billion dirhams ($683 million), to cover for losses as a result of the debt restructuring.

Dubai Group’s debt restructuring proposals are “near final” and an agreement is probable in the next few months, Ben Franz-Marwick, Emirates NBD’s head of investor relations, said on an earnings conference call Jan. 31.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net or Dale Crofts at dcrofts@bloomberg.net

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