Dubai’s Emirates Reit has cancelled a proposed restructuring after a bondholder revolt over transparency and governance.
In a rare example of debtor activism in the Gulf, the real estate investment trust’s manager said on Monday it would rescind its offer for a restructuring of its $400m sukuk, or Islamic bond, maturing December 2022.
The sharia-compliant Reit said 57 per cent of debtholders had voted in favour of the restructuring — short of the 75 per cent threshold needed for the deal to proceed.
The company, advised by Houlihan Lokey, said it would instead “work on enhancing the capital structure for the benefit of all equity and debt holders within the Reit”.
Equitativa, the Reit’s manager, confirmed it would meet a sukuk payment due later in June.
The restructuring offered to replace the existing unsecured sukuk with a new instrument maturing in 2024 backed by a security package of properties worth $280m.
The offer was opposed by a group of bondholders advised by Rothschild which, along with other institutions, represented about 40 per cent of the debt.
The “Ad Hoc Group” had called for more transparency, better governance and improved financial terms as conditions for its support. Emirates Reit has described its governance framework as robust.
The group said it welcomed the company’s “pragmatic” decision to rescind the proposal in the face of what it described as “overwhelming opposition”.
It added that it was committed to starting “constructive” discussions with the aim of supporting “enhanced” terms. A consensual restructuring could provide the company with flexibility to improve governance and undertake a turnround, it added.
Last year a group of shareholders complained to the company’s regulator, the Dubai Financial Services Authority, alleging that the Nasdaq Dubai-listed company was overvaluing its portfolio to boost management fees. Emirates Reit has said its fees are in line with industry norms.
Emirates Reit, which has a portfolio of 11 commercial, retail and education properties in Dubai, said last month it would reduce its management fees by 20 per cent this year after a new external valuation team marked down its portfolio value by 19 per cent over the fourth quarter of last year.
The dissenting bondholders questioned the company’s assertion that the decline in its portfolio had been caused by the pandemic’s impact on Dubai’s property sector.
Before Covid-19 the real estate market had struggled for years because of oversupply but optimism has returned thanks to the emirate’s haven status during the pandemic.
Emirates Reit said it was “beginning to see steady improvement in [the] Dubai market”.