Dubai Group is close to sealing a US$10 billion restructuring deal with its creditors and is expected to sign the final paperwork in the next week or two, a person familiar with the situation said.
When signed, the group’s agreement with its creditors will put an end to long-standing negotiations that have lingered since the global financial crisis of 2008-09.
During the crisis, Dubai received financial support from Abu Dhabi.
The source said that the creditor banks involved in the deal included France’s Natixis and Dubai’s biggest bank, Emirates NBD. Of the $10bn debt, $6bn is owed to banks, while the remainder involves intra-company borrowings.
The source, who was speaking on condition of anonymity, was not able to give financial details of the deal.
A settlement could be good news for the creditors as well as the debtor, said Jaap Meijer, a senior analyst at Arqaam Capital, based in Dubai.
“A resolution of Dubai Group’s debt is positive for the banking sector as it puts an end to the whole saga,” said Mr Meijer. “We will have to wait and see what the financial details are but if the losses the banks end up taking [are] less than the provisions they had made, then it’s good for the banks. Banks in general are very strongly provisioned at the moment in any case.”
Dubai Group is a subsidiary of Dubai Holding, the investment arm of Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.
Dubai Group declined to comment.
The loans of Dubai Group are the emirate’s last debt renegotiations. Talks have proved particularly gruelling because of the need to reconcile creditors whose loans are backed by assets with those whose lending was unsecured.
Dubai Group’s debt talks have proved unusually fractious, with creditors including Royal Bank of Scotland, Commerzbank, Standard Bank and Commercial International Bank starting arbitration against the group in London. The settlement of that legal action allowed negotiations to resume.
The easing of Dubai’s debt troubles has coincided with a surge in tourist arrivals, a resumption of projects and a strengthening property market.
By some measures, investors appear more comfortable with the emirate’s debts than they have been for many years.
Dubai Group’s assets include stakes in Bank Muscat, EFG-Hermes, the Malaysian lender Bank Islam and hotels and shopping centres in the United States, Europe and India.
The company hired scores of Wall Street bankers before the financial crisis, but many of its highly leveraged acquisitions have since been diluted or gone sour, most notably its investments in Cyprus’s banking sector.
Banks in the region have been slowing levels of capital set aside as provisions for the costs of bad debts since the start of the year. Some are even releasing capital previously booked to deal with bad debts – HSBC Middle East unwound $61 million in provisions across the region during the first quarter of last year.
Meanwhile another arm of Dubai Holding, Dubai Holding Commercial Operations Group, which owns Jumeirah Group and Dubai Properties Group, is expected to return to capital markets ahead of a bond maturity next year that will test investor appetite for its debts.
mkassem@thenational.ae
Four motivational quotes from Alicia's Dubai talk
“The only thing we need is to know that we have faith. Faith and hope in our own dreams. The belief that, when we keep going we’re going to find our way. That’s all we got.”
“Sometimes we try so hard to keep things inside. We try so hard to pretend it’s not really bothering us. In some ways, that hurts us more. You don’t realise how dishonest you are with yourself sometimes, but I realised that if I spoke it, I could let it go.”
“One good thing is to know you’re not the only one going through it. You’re not the only one trying to find your way, trying to find yourself, trying to find amazing energy, trying to find a light. Show all of yourself. Show every nuance. All of your magic. All of your colours. Be true to that. You can be unafraid.”
“It’s time to stop holding back. It’s time to do it on your terms. It’s time to shine in the most unbelievable way. It’s time to let go of negativity and find your tribe, find those people that lift you up, because everybody else is just in your way.”
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
