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Dubai secures $2.5bn debt delay

Apr 05 2012 13:38

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Dubai - Dubai Holding, the investment conglomerate owned by the emirate’s ruler, said on Thursday its private equity arm has reached an agreement with creditors to restructure $2.5bn of debt, ending nearly two years of talks.

Dubai International Capital, which has stakes in British-based budget hotel chain Travelodge and German alumina products maker Almatis, will extend $2.15bn of outstanding bank loans by five years at an interest rate of 2%.

A further $350m in loans will be extended for three years, said Dubai Holding, owned by Sheikh Mohammed bin Rashid al-Maktoum.

The debt agreement marks another milestone in Dubai’s effort to rebuild its credibility with investors who fled the region after state-owned conglomerate Dubai World shook markets in 2009 with plans for a $25bn debt restructuring.

Dubai World had built up the debts during the boom years before the financial crisis. It reached a final deal with creditors in 2010, extending repayment over five to eight years.

Dubai International Capital gave no details on how it plans to repay the debt at maturity but the private equity firm has been selling down assets.

It sold hotel operator Ishraq Dubai to diversified firm Almulla Group in October last year. It also sold its 45% stake in valve maker KEF Holdings for $178m earlier in 2011.

It also owns a 27% stake in hedge fund firm Och-Ziff Capital Management Group, according to Reuters data.

“Although we are under no pressure to sell assets, we have been able to make a number of profitable exits in recent months demonstrating the quality of our investments and our ability to find buyers in current market conditions,” said CEO David Smoot.

Parent Dubai Holding’s portfolio includes brands in the property and hospitality sectors, organised under three main groups: Dubai Holding Commercial Operations Group (DHCOG) , DIC and Dubai Group. Dubai Group is itself in talks to restructure debts of around $10bn.

“Dubai Holding will continue to focus on reaching a consensual agreement with Dubai Group lenders,” its CEO Ahmed Bin Byat said in the statement.

Deal already priced in

The cost to insure Dubai’s debt was unchanged at 344 basis points on Thursday after the DIC announcement, according to data provider Markit. The spread has tightened nearly 100 basis points since the beginning of the year.

“The deal was already priced in on the bond market. Options available to lenders were limited and deal fatigue has set in,” said Ahmad Alanani, senior executive officer at investment firm Exotix in Dubai.

“It’s better to restructure and take a small hit than force a borrower to default and deal with the implications.”

DIC’s core creditors include HSBC Holdings, Royal Bank of Scotland, Emirates NBD and Mashreq DIC also formed a new board.

Dubai Holding named Fadel al-Ali, a senior executive at Dubai Holding, as new DIC chairperson. DIC CEO David Smoot and Aidan Birkett, Dubai World’s chief restructuring officer, have also been appointed to the board.
dubai  |  sovereign wealth funds
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