DUBAI, United Arab Emirates (AP) — The Royal Bank of Scotland said Tuesday it has backed out of talks with Dubai Group, an investment company controlled by the emirate’s ruler, to rework the terms on $10 billion in debt.
The move could significantly complicate efforts by the struggling Dubai firm to dig itself out of its debt hole after more than a year and a half of wrangling with creditors.
Dubai’s economy has improved considerably since the emirate’s well publicized financial crisis in 2009. But the latest impasse is a reminder of the challenges still facing its web of debt-laden, state-linked companies. They, along with the government, are estimated to carry more than $100 billion in debt.
RBS was a key member of a coordinating committee negotiating with Dubai Group on behalf of partially secured and unsecured creditors. Local and international lenders together are owed $10 billion by the Dubai company.
In a statement, RBS said it and other lenders presented a number of restructuring proposals that would have allowed Dubai Group to continue operating while meeting its obligations to its creditors. After failing to reach an agreement with the company, RBS said it decided to step down from the committee.
“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,” the bank said. It did not elaborate.
RBS was partly nationalized by the British government during the height of the financial crisis there. It is working to shed some of its non-core businesses while reducing bad loan provisions. British taxpayers still own an 82 percent stake in the bank.
The RBS talks were happening in parallel to separate negotiations by another committee involving a division of France’s Natixis SA and Dubai-based Mashreqbank. That latter group included Dubai Group’s secured creditors, which means their loans are backed by collateral.
A spokesman for Dubai Group declined to discuss details of the negotiations with creditors, citing confidentiality agreements signed by all parties.
“However, Dubai Group remains fully committed to reaching a consensual agreement with all key stakeholders and believes that this remains an achievable objective,” the Dubai Group spokesman said. He spoke on customary condition of anonymity in line with company policy.
It is unclear what options disgruntled creditors might pursue now that talks appear stalled, though a lawsuit is one possibility.
“You never want to see these things go to court. But that’s certainly an option,” an official at one of the company’s lenders said. The official spoke on condition of anonymity because the talks are private.
Dubai Group is part of a conglomerate known as Dubai Holding. It owns property in the United States and has sizable stakes in several financial companies, including regional bank EFG-Hermes and Europe’s Marfin Popular Bank.
Dubai Group first disclosed that it needed to begin debt talks with creditors in late 2010. It initially sought to hammer out revised terms on $6 billion of debt, but later it acknowledged a higher figure of $10 billion.
Dubai, the Middle East’s commercial hub, shocked world markets in late 2009 when its debt challenges came to a head after years of breakneck growth. Concerns initially centered on the government-owned Dubai World conglomerate, but unsustainable debt loads at other state-linked companies quickly emerged.
Dubai World signed an agreement with creditors to repay $25 billion worth of loans in March last year. Some Dubai companies have managed to arrange smaller restructuring packages of their own, though others are still locked in talks with creditors.
Unlike government-owned Dubai World, Dubai Group and its parent are personally controlled by the city-state’s hereditary ruler, Sheik Mohammed bin Rashid Al Maktoum. That means cases involving them are not eligible to be heard in a special tribunal established in 2009 to deal with legal challenges involving Dubai World debt.