Dubai: Dubai Group, an investment conglomerate that is part of Dubai Holding, is initiating talks with creditors after it missed an interest payment last month on a $33 million (Dh121.11 million) loan.
The five-year loan, which matures on December 13, 2011, was used to fund Dubai Group's acquisition of a 49 per cent stake in Bank Islam Malaysia. Bank Islam earlier this year said Dubai Group was trying to sell the stake.
Dubai Group has investments in several entities including Dubai Bank and Europe's Marfin Group.
The group has formed a coordinating committee of banks to negotiate debt repayment. It has a $1.5 billion murabaha Islamic financing facility, due in August next year, in which 24 banks have participated.
"These discussions are making good progress and Dubai Group is confident of a positive outcome that is beneficial to all stakeholders. In the meantime, Dubai Group continues to service its debts," it said in a statement yesterday, without providing details on the value or timeline of debt repayment delays.
No systemic risk
The arrangers of the murabaha included Al Hilal Bank, First Gulf Bank, Noor Islamic Bank, Qatar's Al Khaliji Commercial, Royal Bank of Scotland and Standard Bank.
"It's an overhang in the short term, but we don't see a systemic risk here that can break out. Dubai has set a precedent that it will try to quantify the hit different banks will have to take. This will be contained and managed by banks," Rami Sidani, Middle East head of investment at Schroders, told Gulf News.
Dubai World announced a restructuring of $23.5 billion worth of debt last year. Earlier this year, Dubai International Capital asked for debt repayment delay of three months on a $1.25 billion loan and Dubai Holding Commercial Operations Group also delayed repayment on a $555 million loan until the end of November.
"After what the market has seen with Dubai World in general and the way creditors' interests were protected in a way and valued a lot for the future, this definitely gives some comfort to the market in general," Sidani said.
"Domestic banks have indicated the ability to absorb the shock. Dubai has proven that it will take into consideration the interests of its stakeholders," he said.
— With inputs from Reuters