Dubai Handles Its Debt
A noteworthy investment company, Dubai Group, based in the United Arab Emirates, is the subsidiary of Dubai Holdings. Originally founded in 2000 as The Investment Office, the company was renamed Dubai Group in 2005. Through its companies, the group focuses on banking, investments, and insurance both in the United Arab Emirates and globally. Dubai Group has been able to maintain its success through appropriate control despite difficult times.
Based on a clear objective, Dubai Group restructured its debt of U.S. $10 billion. Borrowing from banks between 2006 and 2008 to fund its acquisitions across the boom years led to a credit-market that was dried-up to its core. As a result of the global financial and the real-estate crises, local government was forced to reassess itself. It found itself unable to manage its obligations, and was forced to renegotiate tens of billions of dollars of debt. Consequently, Dubai Holdings, that includes France’s Natixis and Dubai’s Emirates NBD, agreed to loan the money. “It’s not perfect, but it’s a major milestone for both the Emirate and the banks that were exposed to the Dubai government-related entities,” noted a creditor bank. The final deal involves creditors extending maturities up to 12 years, with the length of time dependent on the level of security against specific debts. This means that Dubai Group’s assets can recover in value before being sold to meet obligations. While the company has signed the document, formal completion means that lenders have to sign an amended inter-creditor agreement that removes references to the loan secured against Dubai Group’s holding in Malaysia’s Bank Islam. The stake was sold at the end of last year to BIMB Holdings, when the money from the divestment had been delivered to those banks that held security against the asset. Some of these lenders had held off signing the restructuring deal until the cash was placed with them. This, in effect, meant that the formal dealclosing time was missed—the end of 2013. Creditors have two parts to the restructuring document: Part One – specific claim against the company which has been formally completed, and Part Two – inter-creditor agreement that manages the overall restructuring. Out of its U.S. $10 billion total debt, U.S. $6 billion is owed to banks, and the remaining U.S. $4 billion is classed as intercompany loans.
■ How well has Dubai Group monitored its performance?
■ Which steps should be taken to properly monitor its ongoing performance as a leading investment bank?