Dubai Group begins debt restructuring talks

Dubai Group, a unit of Dubai Holding, today said it appointed a creditors' committee to start talks about a debt restructuring.

The move comes almost exactly a year after Dubai World, a government-owned conglomerate, rocked global markets by announcing a moratorium on debt repayments and began a $24.9 billion restructuring. The problems at Dubai World put the emirate in the spotlight and raised fears - since proven to be unfounded - of a sovereign default. Since then, observers have kept a close eye on other companies linked to the government as they face large upcoming debt repayments.

Dubai Group is one of three arms of Dubai Holding, a conglomerate owned by Sheikh Mohammed bin Rashid, the Ruler of Dubai and Vice President of the UAE. The other two are Dubai Holding Commercial Operations Group (DHCOG) and Dubai International Capital (DIC), both of which have sought delays on debt repayments in recent months.

"These discussions are making good progress and Dubai Group is confident of a positive outcome that is beneficial to all stakeholders," the company said in a statement. "In the meantime, Dubai Group continues to service its debts."

Dubai Group owns a wide range of companies and assets, including Dubai Bank and Malaysia's Bank Islam through its Dubai Banking Group subsidiary. Dubai Investment Group, another subsidiary, owns numerous properties in the US and Europe, including the Doubletree Hotel Chicago and Märkisches Zentrum, a retail centre in Berlin. Dubai Financial Group, its third major unit, holds stakes in TAIB Bank in Bahrain, Borse Dubai and Marfin Popular Bank in Cyprus.

The restructuring talks come about a month after Dubai World reached a final agreement with all of its bank creditors on its debt restructuring, setting a precedent that analysts say could spur similar moves at other government-linked companies. With DIC and DHCOG already looking at restructurings, economists and analysts said they were not surprised about the Dubai Group announcement.

"At least this time they know what they're talking about from experience," said Alfred Fayek, the head of MENA equity sales at EFG-Hermes, an Egyptian investment bank.

Dubai and its government-related companies have a total of $110.6bn of outstanding public debt, according to Bank of America Merrill Lynch figures. A significant chunk of that - $48.5bn - comes due next year and in 2012.

Dubai Inc has several ways of addressing those dues. They can restructure, delaying repayment for several years. They can refinance the debt by issuing bonds, which has become a viable option in recent months as credit markets open up and stimulus measures in the US push more funds into emerging markets. They can also sell assets to raise cash and repay, which many government-linked companies are already doing.

The recent resurgence in credit markets already allowed Dubai to raise $1.25bn in September, followed up by bond issuances from Emaar Properties and the Dubai Electricity and Water Authority. But it remains unclear whether buoyant sentiment will be enough for Dubai to avoid the need for further aid from Abu Dhabi or the Federal Government, which together pumped $20bn into the emirate last year.

"There's a light at the end of the tunnel," said Turker Hamzaoglu, an economist at Bank of America Merrill Lynch. "It's a long tunnel, but last year when Abu Dhabi stepped in and we saw that light at the end of the tunnel, we were not sure whether it was daylight or a train coming. So now we say that it is the daylight, that they can make it."

Timeline

November 2009: Dubai World announces it will seek a standstill on debt repayments, sending global markets downward and raising the spectre of a sovereign default. Fears of default, however, later prove unfounded as a $24.9 billion debt restructuring proceeds through the early months of 2010 and European countries' struggles with debt steal the spotlight.

December 2009: Abu Dhabi puts $10bn into the Dubai Financial Support Fund, an entity set up to help companies in the emirate weather the global economic storm. That comes in addition to $10bn provided by the UAE Central Bank. With that support in hand, Nakheel, Dubai World's main property unit, pays off a $4.1bn Islamic bond.

May 2010: After months of negotiations with banks, Dubai World says it has secured agreement from its core group of creditors on its debt restructuring. Dubai International Capital (DIC), a private equity unit of Dubai Holding, seeks a three-month delay on debt repayments.

July 2010: Dubai Holding Commercial Operations Group (DHCOG), another Dubai Holding subsidiary, also seeks a delay on debt repayments. Both DIC's and DHCOG's repayments are ultimately extended until the end of November to allow time to hash out a longer-term solution.

October 2010: All creditors of Dubai World assent to its $24.9bn restructuring.

November 2010: Dubai Group, another unit of Dubai Holding that is not part of DHCOG or DIC, says it has set up a creditors' coordinating committee to discuss rescheduling its own debt repayments.