The euro-zone crisis is hampering attempts by Dubai Group to sell assets as the troubled investment company grapples with US$10 billion (Dh36.73bn) of debt.
The company, part of Dubai Holding, is having difficulty proceeding with disposals intended to pay down its debts because of a general rush in Europe.
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The euro zone's financial crisis has left European banks rushing to sell assets as they try to reduce exposure to risky government debt, which the IMF estimates at €200 billion (Dh1.01 trillion).
Dubai Group stopped payments to creditors in August last year to buy time to dispose of assets, a company spokeswoman said.
"We are in constructive ongoing discussions between the coordinating committee in order to restructure fully the bank debts," the spokeswoman said. "The purpose is to put the company on a sound financial footing going forward, allowing it to maximise the value of its assets for the benefit of all stakeholders."
Through various arms of its business, Dubai Group owns stakes in a number of financial services companies, including Borse Dubai and EFG-Hermes, as well as shopping centres, hotels and offices in the US, Europe and Asia.
Banks had granted breathing room for Dubai Group and had agreed to extend credit facilities until the euro-zone crisis eased and asset values recovered, a source close to the talks said.
"Lenders recognise the importance of preserving cash in the company and have shown support by informally rolling facilities throughout the discussions," the source said.
Dubai Holding is the third of the emirate's investment companies, alongside Investment Corporation of Dubai and Dubai World, the conglomerate that finalised a restructuring agreement on $24.9bn of liabilities this year.
The paralysis at Dubai Group, alongside debt restructuring at Dubai Holding, is expected to increase problem loans to 13 to 15 per cent of banks' total loan books this year, analysts from Moody's Investors Service wrote in a research report.
"Dubai Holding will be a significant driver of problem loans in 2011," the report said. "Negotiations are in their early stages, but the potential of some Dubai Holding-related impairment charges over the outlook horizon is high given its highly varied and illiquid asset mix," the report said.
The report also reiterated its "negative" outlook on the UAE's banking sector, saying Dubai's banks were significantly underperforming Abu Dhabi's because of problems at Dubai's government investment companies.
Dubai Group began talks with lenders a year ago to delay its debt repayments.
The extent of debts at Dubai Group was revealed in April when the company publicly disclosed that its liabilities had risen from $6bn to $10bn.
The negotiations have been particularly complex because of the need to reconcile the interests of two groups of creditors - those whose debts are secured with collateral and others with unsecured or partially secured debts.
Emirates NBD, the UAE's biggest bank, made provisions of Dh950 million against its Dh4.8bn exposure to Dubai Group during the third quarter, pushing its quarterly profit to its lowest since the beginning of the financial crisis.
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