Middle East: Banks act against Dubai Financial Group

By:
Dominic O’Neill
Published on:

$10 billion debt restructuring; New stage for Dubai Inc workout

RBS, together with Germany’s Commerzbank and South Africa’s Standard Bank, moved to bring legal action in the $10 billion restructuring of Dubai Group last month. It signals a new stage in the restructurings of Dubai’s medley of heavily indebted government-related entities.

A statement from RBS, previously head of one of Dubai Group’s creditors’ committees, said the three banks were "left with no alternative but to pursue the legal recourse available under the facility documentation".

The action is being brought against Dubai Financial Group, the financial holding company of Dubai Group.

Banks have previously agreed restructurings of government-related entities in Dubai outside the courts. That is partly because of Dubai’s undeveloped insolvency framework and partly because banks have sought to maintain client relationships among the emirate’s entangled corporate structure.

In 2011, international and local creditors agreed a $25 billion restructuring of Dubai World, one of three overarching holding companies in the emirate. Unlike Dubai World, however, Dubai Group is not owned by the government but by Dubai Holding, which is in turn owned by Sheikh Mohammed Al Maktoum, Dubai’s ruler.

Dubai’s Supreme Fiscal Committee – the government entity that oversaw the restructuring of Dubai World – disappointed creditors earlier this year by saying it would stay out of the Dubai Group restructuring. RBS, Commerzbank and Standard Bank subsequently pulled out of talks with Dubai Group in the summer, although other banks continued to negotiate and support the firm’s proposals.

Following the news of the three banks’ legal action, Reuters reported a statement from Dubai Group saying: "We believe that we can reach a consensual agreement with our creditors." RBS also says the three banks’ preference was always to reach an agreement outside the courts and that they would still be open to such agreement if a commercially acceptable offer were made.

No viable solution

Nevertheless, they say the lack of a satisfactory proposal has led to the action they are now taking. "Despite the banks’ goodwill and numerous possible long-term concessions offered by the banks, no viable solution has been reached," said the most recent statement, referring to obligations under a syndicated murabaha facility, which it said have not been paid since 2010.

Dubai Group’s assets include Cypriot lender Marfin Popular Bank, as well as Egyptian banking group EFG Hermes.