Dubai Property Fund Pulls Debt Offer as Bondholders Revolt

Dubai-based Emirates REIT withdrew the restructuring proposal for its $400 million Islamic bond after a group of investors successfully opposed the deal.

Emirates REIT said Monday that 57% of sukuk-holders who voted were in favor of its exchange offer. It said 79% of its bondholders cast votes, without providing further details. The outcome fell short of the 75% the fund required to push through the proposal.

As a result, it rescinded the plan but vowed to continue exploring options to improve the REIT’S sukuk and equity trading. The company also said that “there has been no event of default or any dissolution event” with its debt and that it will pay its upcoming sukuk profit distribution in June as scheduled.

Citing a property slump compounded by the global pandemic, the Shariah-compliant fund had said it needed to improve its balance sheet, offering to exchange unsecured sukuk securities for new notes and asking to defer coupon payments for a year. Fitch Ratings has said the transaction would have been viewed as a “distressed debt exchange.”

The creditors opposing the deal formed a so-called “ad-hoc group” that included local and international investors and asked Emirates REIT to amend its proposal and discuss their concerns. The dissenting shareholders said they represented about 40% of the sukuk holders.

The standoff threatened to deal another blow to Dubai’s reputation as a financial hub where a string of corporate scandals and delistings has shaken investors’ confidence. In rejecting the deal, the group of creditors said the company first had to address its “weak governance, cash leakage and continued lack of transparency.”

‘Weak Liquidity’

In a response to the voting results and in “light of the company’s weak liquidity,” the ad-hoc group said it still wants to negotiate with Emirates REIT.

“A consensual restructuring agreement could provide the company with adequate flexibility to improve governance and undertake a turnaround, whilst providing certificateholders with adequate downside protection for the incremental risk,” it said.

The REIT last year hired investment bank Houlihan Lokey Inc. as an adviser while it mulled ways to improve its balance sheet and considered a potential delisting from the Dubai stock market.

“We will continue to reflect on feedback from the market and work with the company with the aim of addressing the structural issues we observe in the sukuk and equity instruments within the capital structure,” said Arun Reddy, managing director at Houlihan.

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