A group of international lenders is battling for greater transparency and governance changes at a major Dubai real estate investment trust ahead of a crunch vote on its restructuring plans on Monday, marking a rare case of investor activism in the Gulf.
Emirates REIT, the largest sharia-compliant Reit in the United Arab Emirates, faces resistance from a group of debtholders as it seeks to restructure a $400m Islamic bond, or sukuk, maturing in December 2022. A $10.2m payment is due later this month.
The dispute poses another challenge for the Gulf’s commercial hub as the UAE seeks to clear its reputation in the wake of several financial scandals, including the collapse of UK-listed, Abu Dhabi-based hospital operator NMC and the Dubai-based emerging markets private equity firm Abraaj.
Emirates REIT has described the restructuring as “a straightforward and voluntary amend and extend transaction . . . designed with the interests of sukuk holders in mind”. The vehicle, which is listed on Nasdaq Dubai, has said it is confident of securing the consent of the 75 per cent of bondholders required by June 7.
But a group of investors, referring to themselves as the “Ad Hoc Group”, is calling for better governance at the Reit’s manager, Equitativa, as one condition for agreeing to the restructuring. Equitativa is owned by Sylvain Vieujot and his wife, Magali Mouquet, who are chief executive and executive director of Emirates REIT, respectively.
Members of Ad Hoc include international asset managers such as Scotland’s Aberdeen Standard Investments and Vontobel of Switzerland, people familiar with the group said. Both of those asset managers declined to comment.
The group, which says its members hold 40 per cent of the debt, is calling for the manager to reduce what they argue are “excessive” management fees and to offer investors a better financial package for the restructuring.
“The Ad Hoc group is disappointed with the character and business ethics of a company that refuses to engage with meaningful debt stakeholders who are expressing legitimate concerns, demanding transparency and improvement of governance,” said a representative. “The group reserves its options in the event its grievances are not addressed.”
In response, a spokesperson for Equitativa said the Reit has a “robust corporate governance framework,” with five separate boards and numerous independent directors, and that its fees were “in line with industry peers”.
The company, advised by Houlihan Lokey, added its restructuring proposal is fair. It would replace the existing unsecured sukuk with a new instrument maturing in 2024, backed by property valued at $280m.
Last year a group of shareholders, separate to the bondholders, wrote to the Reit’s regulator to raise concerns whether it was overvaluing its portfolio to boost fees.
The Dubai Financial Services Authority told the Financial Times it would take appropriate action if it found any evidence of wrongdoing, but declined to comment on any active investigations.
Emirates REIT, which denied the shareholders’ claims that it was overvaluing, last month said it would reduce its management fees by 20 per cent this year after a new valuation team marked down the value of its portfolio by 19 per cent to $690m at the end of 2020, from $855m in the third quarter of last year. The company attributed the decline to coronavirus’ impact on Dubai’s property sector.
The opposing bondholders, advised by Rothschild, have called for Emirates Reit to disclose these external valuation reports as they argue that the reduction is unlikely to be solely driven by Covid-19.
In the wake of the restructuring proposal, Fitch downgraded Emirates Reit to its lowest rating before a default, but the rating agency said it had enough liquidity to meet the June coupon payment.
However a representative of the bondholder group said it believes, based on cash flow forecasts, that the company may be unable to meet a December payment. Equitativa said it is comfortable with its liquidity position.