Dubai Group Agrees $6 Billion Debt Deal With Bank Committees

Dubai Group LLC, an investment company owned by the emirate’s ruler, agreed on final terms to restructure $6 billion of debt with its main lenders, helping extend a rally in the shares of the sheikhdom’s biggest bank.

The lenders “will need to formally agree the terms with their internal credit committees,” Dubai Group said in a statement, without providing financial details. Creditors will have representation on the company’s board, which will be independent from parent Dubai Holding LLC, after the restructuring is complete, two people familiar with the matter said, asking not to be identified because the matter is private.

Shares of Emirates NBD PJSC and the city’s credit risk this week returned to levels not seen since late 2008, the onset of the global credit crisis, after state-linked companies paid or refinanced about $4.65 billion of debt since last year. Economic growth in the emirate, which suffered one of the world’s worst property crashes during the crisis, is picking up amid a pick up in tourism, real estate and trade.

An agreement “will lower the uncertainty of how much provision banks need to take against this exposure,” Shabbir Malik, a Dubai-based analyst at EFG-Hermes Holding SAE, said by phone today. “Any conclusion is positive to the industry because they’d know the haircut they need to take, and will help investor confidence in Dubai and its banks.”

Shares Surge

After the completion of the restructuring, claims of bank creditors will rank above those of related parties, who are owed an additional $4 billion by Dubai Group, it said today. The terms were agreed with committees representing the lenders.

Emirates NBD, also the United Arab Emirates’ second-biggest bank, set aside 54 percent of the value of Dubai Group’s loans, or 2.51 billion dirhams, to cover for losses as a result of the debt restructuring, it said in January. The bank’s shares gained 4.3 percent to 5.39 dirhams, the highest since November 2008, at the close in Dubai, taking this year’s surge to 89 percent.

“Exposure to government-related entities have been a huge overhang on the banking sector, specifically Emirates NBD, so any conclusion to or clarity on them is very positive,” Amer Khan, Dubai-based fund manager at Shuaa Asset Management, said in an e-mail today.

Restructuring Terms

David Smoot, chief executive officer of Dubai International Capital LLC, won’t expand his role to manage assets of Dubai Group as was proposed earlier this year, two people familiar with the matter said today.

Last year, Dubai Group, which has about 35 lenders, proposed paying banks interest of 1 percent to 2.5 percent on the restructured loans, with full repayment of principal over 12 years, three bankers familiar with the deal said in April 2012. Secured creditors would be repaid in three years, and partially secured and unsecured loans in 12 years, with additional interest provided at the end of the term, they said.

Repayment Pledges

Four lenders, including Royal Bank of Scotland Group Plc and Standard Bank Group Ltd., began arbitration against the group in 2012 as they were dissatisfied with the restructuring terms and the progress. The banks agreed to accept 18.5 cents to the dollar for their loans immediately instead of waiting 12 years to receive full repayment, a banker familiar with the talks said in January.

Successful debt restructurings spurred investor interest in Dubai assets in the past year as policy makers pledged to meet obligations. Dubai will do “whatever we have to do” to repay its debts, Sheikh Ahmed bin Saeed Al Maktoum, head of the emirate’s Supreme Fiscal Committee, said in a May 7 interview.

The emirate’s five-year credit default swaps fell to 187 on May 7, the lowest since at least September 2008, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The contracts, which were at 195 today, peaked above 900 in February 2009.

Dubai World

Dubai’s 5.591 percent 2021 bonds yielded 3.91 percent at 4 p.m. in Dubai, down 115 basis points, or 1.15 percentage points, in the last 12 months, data compiled by Bloomberg show.

Dubai World Corp., one of the sheikhdom’s three main holding companies, roiled global markets in November 2009 by asking creditors for a debt standstill on about $25 billion. That led Dubai to seek a $20 billion lifeline from its wealthier neighbor Abu Dhabi, the U.A.E. central bank and lenders in the capital. Dubai World reached a deal in March 2011 with about 80 banks to repay about $15 billion of loans.

Before it's here, it's on the Bloomberg Terminal.