Dubai Group strikes deal with dissenting banks

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Dubai Group has reached an agreement with four dissenting creditors that had filed arbitration proceedings against the investment conglomerate, two creditors told dealReporter.

The new deal for the four banks is available to all the other lenders that also participated in a USD 1.5bn syndicated loan to subsidiary Dubai Financial Group led by Noor Islamic Bank (NIB), one creditor said. It includes the option for lenders to sell the debt back to Dubai Group at around 20 cents on the dollar, he noted.

The offer has been sent to all banks in the syndicate and the new deal means the issue with the dissenting banks and the arbitration case has more or less been settled, the second creditor said. Dubai Group wishes to maintain parity between the banks and has said it is committed to international insolvency principles, so it is offering the new exit option to all banks in the syndication.

Speaking in July, a source said that the value of assets backing the syndication were equivalent to about 20% of the loan.

Royal Bank of Scotland (RBS), Commerzbank, Standard Bank and Commercial International Bank Egypt (CIB) filed an arbitration case at the London Court of International Arbitration in September following their withdrawal from negotiations with Dubai Group in mid-2012, as reported. Disagreements centred on a five-year early exit option - since included in the restructuring plan - and guarantees. Since then, informal discussions have taken place between the banks and Dubai Group, as reported.

Dubai Group is negotiating with lenders to restructure around USD 10bn of debt, including USD 6bn of bank borrowings, as reported. These include the NIB syndication, four partially-secured bilateral loans totalling USD 1.2bn lent by Nexgen (a unit of French bank Natixis), and a secured USD 300m syndicated facility arranged by Citigroup and involving 15 lenders, as reported.

Banks in the NIB syndicate have around three weeks to sign up for the proposed payout, which will be funded by Dubai Group’s parent Dubai Holding, said the first creditor, speaking in early January. Banks in the syndicate that opt not to sell will stick with the previously presented restructuring plan, which includes a 12-year extension with an option to exit at year five, he said. That early exit option is based on asset sales and a calculation of funds due.

The majority of banks in the NIB syndicate would prefer to sit tight because they do not want to sell their debt at such a discount, the first creditor believed. Exiting at 20 cents on the dollar only makes sense for international banks which have already provisioned for 100% of their exposure, he believed. Local banks would rather wait for 12 years and hope any recovery in asset values doubles or triples, the first creditor said.

There were approximately 30 banks involved in the original NIB facility, as reported. According to news reports at the time, arranging banks were Al Hilal Bank, Al Khaliji Commercial, First Gulf Bank (FGB), NIB, Standard Bank and RBS.

The new deal prompted by the dissenting banks is unlikely to affect the wider restructuring agreement, the first creditor commented. “Most lenders are tired and want to sign off and finish. And most of them are local banks so I doubt any will make a noise,” he said.

Local banks are owed a significant portion of Dubai Group’s total bank debt. Emirates NBD (ENBD) is owed AED 4bn (USD 1.1bn), while Dubai Bank, which was transferred to ENBD ownership in October 2011, also has an exposure of around AED 4bn, as reported. FGB is owed around AED 600m.

The end of restructuring negotiations is now in sight, the second creditor believed. “They’re hoping to get [the whole restructuring] done in the first couple of months of 2013,” he said.

Dubai Group requires 100% creditor support to agree a restructuring deal, as reported.

Spokespersons for Standard Bank, RBS and Dubai Group declined to comment. Spokespersons for CIB and Commerzbank did not respond to requests for comment.

Secured creditors are represented by Nexgen and Mashreqbank. Unsecured and partially secured lenders are represented by Al Hilal Bank, Commercial Bank of Qatar (CBQ), ENBD, NIB and Union National Bank. CBQ and ENBD are co-chairs of that committee.

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