DIC wraps up deal for $2.5bn debt restructure

Dubai International Capital has clinched a deal with creditors to restructure US$2.5 billion of loans over periods of between three and five years.

DIC’s first big foray into global equities was the purchase of a 2 per cent share stake in the German car manufacturer for around $1 billion in early 2005. It was sold, at a profit, 2 years later.

Dubai International Capital (DIC), the investment arm of the Dubai Holding conglomerate, has clinched a deal with creditors to restructure US$2.5 billion (Dh9.18bn) of loans over periods of between three and five years.

DIC, which led the emirate’s investment activity in the boom years ahead of the global financial crisis, simultaneously announced a new board structure under the chairmanship of Fadel Al Ali, the current executive chairman of Dubai Holdings Commercial Operations Group (DHCOG).

Dubai Holding is owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.

“This agreement is an important landmark for us. The successful restructuring is a result of the significant commitment demonstrated by all stakeholders and we acknowledge their role in achieving this agreement,” said Ahmad bin Byat, the chief executive of Dubai Holding.

“It puts DIC on a sound financial footing.”

Also nominated for independent positions on the new board are Aidan Birkett, a British restructuring adviser who in 2010 helped Dubai World agree to terms with creditors owed almost $25 billion; Christopher Rowlands, a British investment adviser; and Abdullah Sharafi, a prominent Emirati businessman with financial and industrial experience.

The new board will include David Smoot, an American and a former investment banker who has been heading DIC since its founding chief executive, Sameer Al Ansari, stepped down in 2010.

A restructuring of DIC has been under discussion between creditors, led by Emirates NBD, and Dubai Holding executives, for many months.

Under the terms finally announced yesterday, creditors holding $2.15bn of loans will see them repaid over five years, with an interest rate of 2 per cent cash. Creditors of $350m of loans are to be repaid over three years on unchanged terms.

No calculation of any possible “haircut” – a long-term reduction in the value of the banks’ loans – was available from the company or from bankers.

“The deal was already priced in on the bond market. Options available to lenders were limited and deal fatigue has set in. It’s better to restructure and take a small hit than force a borrower to default and deal with the implications,” Ahmad Alanani, a senior executive at investment firm Exotix in Dubai, told Reuters.

A person familiar with the deal said the strategy of DIC would be to focus on adding value to its existing portfolio of assets, and realising capital from those assets when prices were suitable.

“That is what a private-equity firm does, it buys and sells assets. I doubt there will be big acquisitions, but you cannot rule out bolt-on deals,” said the person, who wished to remain anonymous.

Mr Smoot said DIC was not being pushed to dispose of assets.

“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.

“Despite the challenging macroeconomic environment the portfolio is well positioned to navigate current markets with less leverage, better liquidity and long-term financing, reflecting significant future value potential,” he said.

DIC has sold some smaller assets in recent months but it still has significant interests in Germany, the United States and Britain, where it owns the Travelodge chain of budget hotels.

“This represents another step in Dubai’s continued march in the right direction … This is clearly reflected in the recent tightening of credit default swap [CDS] spreads and we believe it will give further traction to the growing positive momentum,” said Rick Pudner, the chief executive of Emirates NBD.

CDS levels provide a measure of the likelihood of a company defaulting on its debts.

Other Dubai businesses still face potentially tricky negotiations with creditors. Dubai Group, the financial arm of the Dubai Holding conglomerate, is in talks over $6.2bn of debt, and DIFC Investments faces repayment of a $1.25bn sukuk (Islamic bond) in June.

DIC’s agreement is the second positive move on Dubai debt in the past few days. Drydocks World, the shipbuilding arm of Dubai World, said it had secured “overwhelming majority support” for its recent proposals on $2.2bn of debts, in which it sought the protection of Dubai’s so-far untested procedures for voluntary insolvency.