Bondholders in Dubai-based Emirates REIT's $400m Sukuk to escalate all 'legal options'

Dubai: Investors in Dubai-based real estate fund Emirates REIT’s $400 million bond expect to show they have the majority numbers to counter the fund's manager plans to extend the maturity date. They expect to do so at any upcoming investors' meet called by the fund manager - Equitativa - and most likely planned for early June.

The bondholders are also calling for any updates on an enquiry launched by DIFC (Dubai International Financial Centre) regulator DFSA into Emirates REIT last year, as well as more transparency into the functioning of the fund, which reported Dh897 million in losses for 2020.

The bondholders represent some of the biggest international institutional funds as well as local enterprises. They had bought into the $400 million Sukuk in December of 2017 as Emirates REIT went for a massive expansion of its property portfolio in Dubai.

“The intention of the June meeting is to find whether investors making up 75 per cent of the $400 million collected want Emirates REIT to reconsider its decision to issue new Sukuk certificates to replace the existing ones,” said a source who was part of a virtual meeting among bondholders on Sunday (May 23). “If the June meeting doesn’t have the 75 per cent quorum, a second meeting will be called – and there only a 50 per cent simple majority is needed.”

Ratcheting up

At Sunday’s meeting, the bondholders – calling themselves the ‘Ad Hoc Group’ – confirmed the consultancy Rothschild & Co. and the law firm Clifford Chance to represent their interests.

Earlier this week, the Emirates REIT fund manager Equitativa had placed a proposal to replace its current five-year $400 million Sukuk – which will mature late 2022 - with new Sukuk certificates that will only become due in 2024. This was done through a ‘Consent Solicitation’ process. Current Sukuk holders are to submit by 4pm BST (British Summer Time) on Wednesday (May 26) to benefit from a 1 per cent early ‘Documentation Review Fee’.

Obviously, the bondholders would only need to be paid in 2024. In a briefing to ‘Gulf News’, bondholder representatives said this is a sticking point. “The Ad Hoc Group is unified in its dissatisfaction with the company’s proposal and perceive it as audacious as Equitativa appears to be structuring the Consent Solicitation process to the advantage of Equitativa,” said an investor.

Sticking points

“Equitativa is asking for a full waiver of past or continuing breaches without disclosing what these breaches are. The company is legally bound to disclose all breaches or “Dissolution Events”, past or continuing.

“We will also want full disclosure on the allegations leading up to the DIFC regulator’s investigation. The Ad Hoc Group does not believe it is to the benefit of bondholders to consent to the company’s proposal as it will significantly put them at a disadvantage.

“The bondholders will revert to the company in the coming days setting out their grievances and will negotiate a better deal for all holders of the bonds.”

Secured assets

In its conversion proposal, Emirates REIT said the new certificates will be secured by a “very substantial part of the assets” held by it. “Emirates REIT believes that Sukuk holders will benefit by moving from the current unsecured Sukuk to the new secured Sukuk which includes security over several prominent revenue-generating properties, such as part of Index Tower in DIFC, Office Park, Trident Grand Mall, the 3 Loft Offices buildings, and Building 24,” it said in the statement issued Saturday.

Also, Arun Reddy, Managing Director of Houlihan Lokey, the consultancy advising Emirates REIT on a turnaround plan, said: “The proposed transaction is designed to provide a dollar-for-dollar exchange of unsecured Sukuk to a secured Sukuk with the intention of maintaining an effective profit rate of 5.125 per cent and extending the maturity by two years.

“The proposal is designed to improve the tradability of the Sukuk and support the trading price for the Sukuk holders. We would expect there to be significantly more secondary interest for the new secured Sukuk vs the existing one.”

Soon enough, bondholders will be giving their formal thoughts on the plan…