DUBAI: Royal Bank of Scotland and two other banks have abandoned talks on restructuring Dubai Group's US$10bil debt and threatened to bring unprecedented legal action against the investment vehicle of Dubai's ruler, sources close to the matter said.
The walkout by RBS, German lender Commerzbank and South Africa's Standard Bank at the beginning of June could prevent a deal for the entire restructuring just as an initial agreement is about to be circulated to other banks, five sources said.
They said the three banks had walked away and were threatening legal action to demand immediate payment, unprecedented in an emirate where banks have tended to take the best terms on offer due to an opaque legal system and to avoid jeopardising chances of winning future business.
“We are no longer negotiating. We have asked for our money back or we will go to the courts under the terms of the contracts we signed,” said a banker at one of the lenders, speaking on condition of anonymity.
RBS had been co-chair of the creditor committee representing banks with either little or no security tied to their cash.
All three banks were part of this group of creditors, the largest of three groups negotiating with Dubai Group, a unit of Dubai Holding, the personal investment arm of Sheikh Mohammed bin Rashid al-Maktoum.
A spokeswoman for RBS confirmed the part-nationalised British lender had given up its role on the creditor committee, but did not give further details of its position.
“This decision was not taken lightly as RBS has a strong track record of supporting restructures in the region, but a number of factors beyond our control have led us to consider other options in this case,” she said.
Dubai Group said it didn't comment on private negotiations but said it “remains fully committed to reaching a consensual agreement with all key stakeholders and believes that this remains an achievable objective.”
Commerzbank declined to comment. Standard Bank did not respond to a request for comment.
A document detailing the terms of a proposed restructuring was signed by the mainly unsecured creditor committee last Tuesday and was due to be put to all those creditors this week, three sources said.
It is the first time an agreement has been reached between the company and its 44 creditor banks since Dubai Group missed two debt repayments in late 2010, precipitating restructuring talks.
Most banks are from the Gulf and Egypt, but they also include France's Natixis.
The government walked away from debt talks in January, dashing any hope creditors had of state support.
The banker said that if the three banks were not repaid, it could force Dubai Group into liquidation and jeopardise the entire restructuring.
But the threat of legal action could also be a sign of frustration among creditors, said Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi, which is not involved in the restructuring.
“We would regard it more as posturing or sabre rattling simply aimed at getting more reasonable terms,” he said.
The three banks' main concern is the proposed 12-year debt repayment extension for unsecured creditors because of the cost it would impose on the banks to extend cash for so long, three sources said.
Other restructurings in the region have involved much shorter extensions. Reuters