Dubai Group to Cut Bank Debt After $550 Million Bank Islam Sale

Dubai Group LLC, the investment company restructuring $6 billion, will reduce borrowings after selling its stake in Bank Islam for $550 million.

The sale will result in a “material reduction” in Dubai Group’s debt, a company spokesperson, who asked not to be identified, said today in an e-mailed statement. Around nine banks will be paid after the sale is completed, the person said.

Dubai Financial Group LLC, a unit of Dubai Group which is owned by the emirate’s ruler, signed an agreement with BIMB Holdings to sell its 30.5% stake in Bank Islam, the first Islamic bank in Malaysia. Dubai, which teetered on the brink of default in 2009, is accelerating asset sales as more than $30 billion of debt repayments come due next year.

The sale “stems from a strategic plan to support broader ongoing restructuring process by selling assets at the right value,” Dubai Group Chief Executive Officer Fadel Al-Ali said today in a separate e-mailed statement.

Asset Sales

Dubai Financial Group acquired a 40 percent stake in Bank Islam for $224 million in October 2006. Its shareholding was reduced to 30.5 percent in 2009 because Dubai Financial Group elected not to participate in a capital increase.

The group in June agreed to sell its stake in consumer lender Dubai First to First Gulf Bank PJSC (FGB) for 601 million dirhams ($163 million). Dubai Holding LLC, Dubai Group’s parent company, plans to sell its 35 percent stake in Tunisie Telecom, the country’s ministry for information and communication technologies said June 21.

Seven Sheikhdoms

The second largest of the seven sheikhdoms that comprise the United Arab Emirates, Dubai is seeking to take advantage of a rebounding economy to regain investor confidence after its near default on $25 billion of debt roiled markets almost four years ago. State-owned companies such as Dubai Holding and Dubai World Corp. borrowed billions in a spending binge intended to make the city the trade and tourism hub of the Middle East.

The emirate’s state-linked debt coming due totals about $32 billion next year and $9.6 billion in 2015, according to Bank of America Merrill Lynch. Abu Dhabi, Dubai’s larger neighbor, probably won’t provide direct support next year after rescuing Dubai from the crash with a $20 billion lifeline, Moody’s Investors Service said in a March report.

To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net; Stefania Bianchi in Dubai at sbianchi10@bloomberg.net

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

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