A group of international lenders are battling for more transparency and governance changes at a major Dubai real estate investment fund ahead of a vote on restructuring plans on Monday, in a rare case of investor activity in the Gulf.
Emirates REIT, the UAE’s largest Shariah-compliant real estate investment trust, is facing resistance from a group of debt holders as it seeks to restructure a $400 million bond or sukuk maturing in December 2022. The 10.2 million is due to be repaid. dollars later this month.
The dispute poses another challenge to the Gulf business hub as the UAE seeks to cleanse its reputation in the wake of several financial scandals, including the collapse of a UK-based hospital operator based in Abu Dhabi. NMC and a Dubai-based private equity firm for emerging markets towers.
Emirates REIT described the restructuring as a “direct transaction, voluntary adjustment and expansion…designed with the sukuk holders’ interests in mind.” The company, which is listed on Nasdaq Dubai, said it was confident of securing the approval of 75 percent of the required bondholders by June 7.
But a group of investors, referring to themselves as the “Ad Hoc Group,” is calling for better governance at Reit’s director, Equitativa, as one condition for agreeing to the restructuring. Equitativa is owned by Sylvain Fugot and his wife Magali Moquet, who are the CEO and CEO of Emirates REIT, respectively.
Ad Hoc members include international asset managers such as Scotland’s Aberdeen Standard Investments and Switzerland’s Vontobel, people familiar with the group said. Both asset managers declined to comment.
The group, which says its members own 40 percent of the debt, is asking the director to reduce what they argue are “excessive” management fees and to offer investors a better financial package for restructuring.
“The Ad Hoc Group is disappointed by the nature and work ethic of a company that refuses to engage with debt stakeholders who express legitimate concerns, and demand transparency and improved governance,” said one representative. “The group reserves its options if its grievances are not addressed.”
In response, an Equitativa spokesperson said the House has a “strong corporate governance framework,” with five separate boards and several independent directors, and that its fees are “in line with their industry peers.”
The company, which was advised by Houlihan Lokey, added that its restructuring proposal was fair. It will replace the existing unsecured sukuk with a new instrument maturing in 2024, backed by $280 million in property.
Last year, a group of shareholders, separate from bondholders, wrote to the REIT regulator raising concerns about whether it was overvaluing its portfolio to increase fees.
The DFSA told the Financial Times it would take appropriate action if it found any evidence of wrongdoing, but declined to comment on any ongoing investigations.
Emirates REIT, which has denied shareholders’ allegations that it is overvalued, said last month it would cut its management fee by 20 per cent this year after a new valuation team reduced the value of its portfolio by 19 per cent to $690 million. end of 2020, from $855 million in the third quarter of last year. The company attributed the decline to the impact of the Corona virus on the real estate sector in Dubai.
The dissenting bondholders, advised by Rothschild, have called on Emirates REIT to disclose these external assessment reports because they argue that the cut is unlikely to be driven alone by Covid-19.
Following the restructuring proposal, Fitch downgraded Emirates REIT to its lowest rating before defaulting, but the rating agency said it had enough liquidity to meet the June coupon payment.
However, a representative of the bondholders group said he believed, based on cash flow forecasts, the company might not be able to make the December payments. Equitativa said it is comfortable with its liquidity position.