RBS joins legal action against Dubai Group

City Editor

Friday 14 September 2012

ROYAL Bank of Scotland is heading for a clash with Dubai's ruler after joining with two other banks to launch legal proceedings, demanding immediate repayment of billions of pounds of loans from one of his investment interests.

Custom byline text:

TIM SHARP CITY EDITOR

Part-nationalised RBS launched the action against Dubai Group in London with German lender Commerzbank and South Africa's Standard Bank after the abandonment of talks to restructure $10 billion (£6.25bn) of loans.

Dubai Group is the financial services arm of Dubai Holding, the investment vehicle of Dubai's Sheikh Mohammed bin Rashid al Maktoum.

Its European interests run from German shopping centres to a Cypriot bank.The banks said they were forced to act after concessions offered to Dubai Group failed to secure a solution. "Our preference was always to conclude an agreement without formal legal proceedings and we therefore remain open to such an outcome if an acceptable commercial resolution is forthcoming," the banks said.This suggests that the legal move may be a negotiating tactic for RBS and its allies who have been negotiating with Dubai Financial Group since it missed interest payments on two loan facilities in 2010.The Dubai Government walked away from the debt talks in January, suggesting it would not be prepared to inject funds into the business which has struggled since asset prices fell during the financial crisis.There is great uncertainty over how Dubai's insolvency laws would work if the banks were successful in their legal action and whether and how they would get their hands of Dubai Group assets.The complexities of unwinding the Islamic financing facility are also unexplored.The filing comes at a time when others banks involved in the restructuring are considering a proposal, put to them before the summer, which would see debt extensions ranging from three-and-a-half to 12 years.This would potentially allow asset prices to recover.Of the $10bn total debt, $6bn is owed to banks and the remaining $4bn is classed as inter-company loans.The case puts 82% state-owned RBS up against Sheikh Mohammed, scion of a family that has held power since 1833.He is known for his love of horse-racing and founded the renowned Godolphin stable.His business interests are wide-ranging.The Dubai Holding vehicle which he controls was formed in 2004. It has investments in four continents with more than 250 companies and around 16,000 employees.Sheikh Mohammed has overseen a huge building programme as he seeks to diversify the city state away from reliance on oil into other areas such as financial services. But his plans ran into problems when property markets collapsed in 2009.RBS was among the banks burnt in last year's $25bn restructuring of Dubai World.In April the private equity arm of Dubai Holding, Dubai International Capital (DIC), was allowed by lenders including RBS, Lloyds Banking Group and RBS to extend $2.2bn of outstanding loans by five years. DIC's holdings include stakes in British hotel chain Travelodge Group. RBS shares closed down 0.8p, or 0.3%, at 273.9p.

Contextual targeting label:

Finance

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis. If you're a relatively new user then your comments will be reviewed before publication and if we know you well then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules, which are available here.

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

RBS joins legal action against Dubai Group

Commenting & Moderation

MOST READ

SPONSORED LINKS

MOST COMMENTED