Dubai’s UAE Real Estate Investment Trust halts debt restructuring plan after creditors vote

After its lenders blocked the debt restructuring plan and raised “serious concerns” about its transparency and governance, a large real estate investment fund in Dubai became the focus of attention.

After a rare investor radical campaign, the Dubai-based UAE Real Estate Investment Trust was forced to withdraw its $400 million sukuk restructuring proposal-which is not common in the conservative Gulf region.

The UAE’s largest Shariah-compliant real estate investment trust (REIT) confirmed on Monday that it had failed to obtain the 75% of the shareholders’ vote required for the restructuring, which included postponing the issuance of bonds. The maturity date is two years to 2024.

“Therefore, the UAE REIT has decided to cancel the voluntary acquisition and will continue to work to improve the capital structure to benefit all equity and debt holders in the REIT,” it said in a statement on Monday.

Compliance with Sharia law means that the relevant funds or trusts are bound by Sharia law and Islamic religious principles, including the prohibition of charging interest for profit, and prohibiting most of the income from alcohol, gambling, pork, pornography, and arms sales.

Eleven institutional creditors, including Scotland’s Aberdeen Standard Investments, successfully initiated activities to request cancellation of the transaction. The group stated in a statement on June 2 that its opposition reflects lenders’ “serious concerns” about the “weak governance, cash loss and continued lack of transparency” of the UAE Real Estate Investment Trust.

“My biggest concern is the complete lack of transparency in the company,” said Ahmad Alanani, the chief executive of Dubai-based Sancta Capital, which is also part of a group of creditors.

Dissenting creditors claimed that REIT manager Equitativa failed to explain the company’s liquidity position, its ability to repay on the proposed maturity date, and provide information about ongoing regulatory investigations. Rothschild is one of the agencies hired as an adviser to bondholders against change.

“What is the current state of investigation by regulators? What is the basis for the valuation of REIT assets? What is the current liquidity status of REIT? What are the business plans and forecasts?” Alanani told CNBC’s Capital Connection.

He added: “The level of information disclosure provided by the company is best described as basic information.”

Equitativa rejected the group’s statement and said it is cooperating with the ongoing investigation by the local regulator, Dubai Financial Services Authority.

Arun Reddy, an adviser to the UAE Real Estate Investment Trust and the managing director of Houlihan Lokey, a U.S. investment bank, said: “I believe that the company proactively and voluntarily proposed a direct transaction that aims to increase the Tradeability issued a statement on Monday. Sukuk means sukuk in Arabic, and this tool has rapidly become popular in recent years.

Houlihan Lokey stated that it is advising the UAE Real Estate Investment Trust on ways to improve its balance sheet, including possible delisting from the Nasdaq local exchange in Dubai.

Fitch Ratings Agency at the end of last month Downgrades the credit rating of the UAE Real Estate Investment Trust Several grades from “B+” to “C”, this is the final rating before the borrower defaults on the debt. Fitch stated that the company’s proposed bond changes are “substantial cuts to lenders.”

The UAE Real Estate Investment Trust has required debt holders to exchange their unsecured notes for a secured but longer-term alternative in order to strengthen their balance sheets in Dubai due to the real estate and economic recession caused by the pandemic.

The UAE Real Estate Investment Trust stated that an absolute majority of Islamic bondholders (57%) have voted in favor of its proposal. It also stated that there was no default or any dissolution related to its debt.

The final disclosed value of its residential, commercial and educational asset portfolio was US$690 million. The company said it has the funds to pay shareholders an upcoming dividend this month-worth $10.2 million. The other payment will be due in December.

The debt dispute comes as the UAE seeks to consolidate its reputation as a commercial and financial center following a series of high-profile scandals, including the collapse of Abu Dhabi-based hospital operator NMC and Dubai-based private equity firm Abraaj.

“The fact that real estate investment trust funds and real estate investment trust fund managers are under investigation does illustrate a certain level of supervision,” Alanani defended the local regulator. “The UAE cannot avoid fraud or governance issues. This situation is everywhere.”

He added: “We need to sit down in good faith, engage constructively with all stakeholders at the negotiating table, and find a way forward.”

According to data from its central bank, the UAE’s economy — the second largest economy in the Arab world — contracted by 6% in 2020, while Dubai’s economy shrinks by about 11%, According to Standard & Poor’s. Rating agencies believe that the city’s economy will not return to pre-crisis levels until 2023.