Financial Regulatory Forum

Dubai panel to settle Tamweel, Amlak disputes

December 30, 2009

By Tamara Walid

DUBAI, Dec. 30 (Reuters) – Dubai has set up a panel to protect the creditors of troubled mortgage lenders Amlak and Tamweel, whose long-planned merger is slated for early 2010, in a bid to boost transparency.

The Gulf emirate’s reputation took a big hit over its request on Nov. 25 for a delay in repaying $26 billion in debt linked to flagship firm Dubai World. It has been trying to put its financial house in order in recent weeks.

Dubai has formed a judicial committee to protect creditors and companies related to Amlak and Tanweel, a statement from ruler Sheikh Mohammed bin Rashid al-Maktoum’s office said on Wednesday.

The committee “will be the only judicial body … with the right to review all requests and legal claims related to settling the financial issues of the two companies,” it said.

The office gave no more details on the panel or on why it was set up.

Dubai-based lawyer Wael al-Tunsi said it was unclear whether the panel would handle criminal or civil cases or both.

“I think this is an attempt to reach the best settlement for cases related to both companies, otherwise it’s too complicated and might not be beneficial to anyone,” he said.

Amlak and Tamweel separately welcomed the move, saying it would help the merger plans and protect the interests of stakeholders.

Dubai has planned to restructure the two Islamic firms — battered by a property downturn caused by the global financial crisis — since trading in their stocks was halted last year.

“What’s happening really is that Dubai is trying to restructure many of its high risk entities,” said UBS analyst Saud Masud. “It is taking on the responsibility of making sure that whatever they can fix, they fix first and whatever needs federal support then goes to the federal teams.”

 

MERGER IN 2010

In November 2008, the federal government of the United Arab Emirates (UAE) said it would combine Amlak and Tanweel, and a state panel later recommended merging them into an Islamic bank.

Tamweel said last month the merger was set for early 2010.

“Given that these two key, UAE Islamic home finance institutions have been in policy limbo for over a year, their lenders and creditors are probably quite concerned about any exposure they have,” Moody’s analyst Khalid Howladar said.

The lenders have suffered a dearth of liquidity, absent or minimal property-related income, and deteriorating asset quality since the property collapse.

Tamweel returned to profit in the third quarter after three consecutive quarterly losses, although earnings still sank 95 percent year-on-year. Amlak posted a fourth-straight quarterly net loss in the third quarter.

Both lenders have been hampered by a lack of deposits, relying instead on “problematic market funding,” Moody’s Howladar said.

“We have an asset-backed (Islamic bond) outstanding on Tamweel that shows us the existing ijara book is performing well — so there are some good assets in the two companies,” he said. Ijara is a type of mortgage that conforms to sharia law.

“It’s the off-plan financing book that is the real concern and probably needs to be dealt with if either institution is to move forward,” Howladar said.

Moody’s downgraded Tamweel’s long-term rating to Baa3 from Baa1 on Dec. 14 and its senior unsecured debt of $299.5 million maturing in 2013, got the same downgrade.

Dubai has made several changes to its legal structure due to rising criticism about legal oversight.

The emirate this month enacted a bankruptcy law modelled on laws in the West, set up a tribunal to resolve Dubai World [DBWLD.UL] disputes, tightened prison terms for corruption, and told state bodies to transfer revenues to the treasury.

An 11th hour bailout from neighbouring Abu Dhabi helped Dubai stave off default on a $4.1 billion Islamic bond issued by Dubai World property unit Nakheel.

Conditions of the $10 billion lifeline call for Dubai World to agree an acceptable standstill with creditors on its debt.

“The expectations set now is that Dubai has to take ownership of all its risks because otherwise everything is a bailout if everything goes back to Abu Dhabi’s balance sheet,” said Masud, the analyst at UBS. (Additional reporting by Rania Oteify; writing by Amran Abocar; editing by David Cowell, Hans Peters and Karen Foster)

 ((tamara.walid@thomsonreuters.com; +971 4 391 8301; Reuters Messaging: tamara.walid.thomsonreuters.com@reuters.net)) ($1=3.673 Uae Dirham)

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