Dubai’s Amlak Agrees $2.7 Billion Debt Deal With Creditors

Amlak Finance PJSC, the Dubai-based Islamic mortgage provider, has agreed to a $2.7 billion debt restructuring that may pave the way for its shares to resume trading after they were suspended in 2008.

The committee appointed by the United Arab Emirates government to negotiate the deal “expects the restructuring to be completed and fully implemented in 2014,” with the stock likely to resume trading in Dubai by early 2015, Sultan Bin Saeed Al Mansoori, the U.A.E.’s Minister of Economy and chairman of the committee, said in an e-mailed statement today. Amlak will shortly make an initial payment of about 2 billion dirhams ($545 million) to lenders, with the remaining debt paid over 12 years, according to the statement.

The company part-owned by Emaar Properties PJSC met lenders in June to present the deal, a spokesman said last month. Amlak shares were halted from trading after the global credit crisis blocked the company’s access to borrowing, its main source of funding, and it was forced to negotiate with creditors. The lender reported a third-quarter loss of 40 million dirhams in 2011, the last time it disclosed financial results, according to filings on the Dubai Financial Market.

“This is a positive development as it closes one of the chapters of the crisis,” Montasser Khelifi, a senior manager for global markets at Quantum Investment Bank Ltd. in Dubai, said by telephone today. “This is good news for Emaar as well since it will help recover some of Amlak’s value, although this will be diluted a bit by the addition of new shareholders.”

Debt Swap

The deal has been structured so that financiers will swap approximately 1.4 billion dirhams of their original debt for a convertible instrument, which is to be fully redeemed over the next few years from gains from Amlak’s real estate assets, according to the statement. Amlak will also start repaying support funds from the U.A.E. government over six-years.

Dubai, the Persian Gulf’s trade and tourism hub, had one of the world’s worst property crashes after the credit crisis as prices fell by more than 60 percent from their 2008 peak. The emirate’s recovery from the brink of default in 2009 helped fuel a 35 percent-increase in real estate prices last year, according to broker Knight Frank LLP.

Tamweel PJSC, another Dubai-based Islamic mortgage company whose shares were suspended in November 2008, was rescued when Dubai Islamic Bank PJSC boosted its shareholding in the company in 2010. Amlak and Tamweel were the two biggest mortgage providers in Dubai during a real-estate boom that began in 2002 when the government allowed foreigners to buy properties in some parts of the emirate.

Protecting Shareholders

“Initially, Amlak won’t make the same profit it was making before the crisis,” Harshjit Oza, an analyst at NAEEM Brokerage, said by telephone today from Cairo. Interest rate “spreads have come down with the larger number of players and the increasing competition in the mortgage market,” he said.

Amlak’s liabilities were reduced by 4 billion dirhams in March 2012 after it sold land and reached agreements with some creditors. The government committee overseeing the deal decided not to liquidate the company to protect the rights of shareholders, Al Mansoori said at the time.

Emirates NBD PJSC led the committee representing the 28 lenders, which also included Standard Chartered Plc, Dubai Islamic Bank PJSC, Abu Dhabi Islamic Bank PJSC, Dubai’s Department of Finance and the National Bonds Corp PJSC. PricewaterhouseCoopers LLP advised the committee while KPMG LLP advised Amlak.

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