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Govt pulls out of Dubai Group debt talks

Dubai, February 3, 2012

The Dubai government has walked away from talks about a $10 billion debt restructuring of Dubai Group, leaving the firm, part of the ruler of the emirate's personal empire, to deal directly with creditors and dashing hopes of a state-backed rescue.

Dubai's Supreme Fiscal Committee (SFC), the high-level group that oversaw Dubai's finances during the 2009 debt crisis and is headed by the ruler's uncle, had been helping Dubai Group address debt issues that have left interest unpaid for more than a year.

But in a letter this week, Dubai Group told the banks' committee of unsecured creditors that the SFC had ended its involvement in negotiations, and that no financial support would be coming from the government, according to two sources who have seen the letter.

"If the government has stepped away from the table, all the things which we have asked for are impossible because they (Dubai Group) don't have the ability to give us anything," one of the sources said.

The unsecured creditors want $2 billion in financial support - including a backstop guarantee of $1.8 billion from "the Dubai government or other equivalent quality entity" -- according to a December 4 letter signed by five of the six members of the committee, sent to Dubai Group, and seen by Reuters.

The letter from Dubai Group, part of Dubai Holding, the personal investment vehicle of Sheikh Mohammed bin Rashid Al Maktoum, was a response to the December 4 demand.

According to the sources, Dubai Group now plans to table a proposal independently of the SFC to the creditor committee by the end of February, with a deal likely put to the rest of the unsecured group in March.

The 44-member bank group of secured and unsecured creditors consists mostly of lenders based in the Gulf and Egypt but also includes Royal Bank of Scotland and France's Natixis.

A Dubai Group spokeswoman said the firm, whose mainly financial assets include stakes in Cypriot and Malaysian banks, was still in talks with lenders and "fully committed to reaching a consensual agreement reasonable for all stakeholders."     

Creditors insist government support is essential to any deal because the firm's financial position -- limited cash flow and assets with sharply reduced values -- raised the "considerable risk" of default on a renegotiated structure. 

"The banks are not expecting the government to come and write them a cheque for $6 billion," the source said, citing the amount owed to banks. Inter-company loans within Dubai state entities account for the remainder of the group's $10 billion outstanding debts.

"(The letter) was very much a last roll of the dice in terms of the banks putting their hands up and saying we want to do a consensual deal and these are the terms we think are fair and reasonable."     

The creditors' letter also warned a number of banks are considering legal action to secure their dues. "We haven't given up but there is a considerable amount of impatience," said a second source.

Al Hilal Bank, Noor Islamic Bank and Royal Bank of Scotland  all signed the letter but declined to comment. Other signees Emirates NBD and Union National Bank  did not immediately respond to requests for comment.
Dubai Group has not paid interest on its debt pile since August 2010, sources told Reuters in November. The amount outstanding is likely to top $1 billion by the time any deal is reached, two of the sources said. In November, the firm said it will roll interest payments into the principal owed. - Reuters

Tags: banks | debt | Dubai group | SFC |

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