Dubai: Dubai-based real estate fund operator Emirate REIT’s plans to give another debt offering is meeting “significant resistance” from a “majority” of its current bondholders, exceptionally positioned sources have told ‘Gulf News’.
These bondholders have called a virtual conference today in the afternoon to talk about the choices accessible to them, including lawful methods, these sources add. “We believe that there is a widely recognized view that the company (Emirates REIT) proposal, in its current form, largely fails to address the long-standing concerns regarding other core issues,” said a source at one bondholder holding openness in a $400 million, five-year Sukuk issued in late 2017.
These bondholders address probably the greatest names in the worldwide and nearby institutional investment space.
What brought this on?
It was on Saturday that Emirates REIT – which works properties, for example, the prestigious Index Tower in DIFC and GEMS Academy in its portfolio – said it “seeks to exchange” its current unstable Sukuk certificates with new secured ones at “same profit rates”. The successful benefit rate would be kept up at 5.125 percent, though broadening the development by two years.
The substitution Sukuk certificates would develop in 2024 as against the 2022 on the past issue. This is the thing that welcomed new worries for a portion of the bondholders.
“We find there’s poor past and present performance of the underlying real estate portfolio – beyond the COVID-19 factor,” said the source. “There’s also been, in our opinion, excessive cash leakages to the REIT (real estate investment trust) manager given poor past and present performance, coupled with burdensome G&A (general and administrative) costs.”
Most tellingly, the bondholders also want clarity on the status of an investigation launched by DFSA (Dubai Financial Services Authority) last year. “There is also no clarity on the ongoing DFSA investigation against Equitativa (which is the Emirates REIT fund manager),” the bondholders’ representative said, and who will be attending today’s virtual event. “We believe that this is a significantly important event and therefore requires full disclosure on the current status and the nature of allegations before any discussion on the Sukuk.”
Mounting losses
Emirates REIT recorded steep misfortunes of Dh897 million in 2020, brought on by continuing erosion of significant worth in its property portfolio, which includes a blend of office, instructive and medical care resources. Accordingly, Emirates REIT fund manager recently confirmed it will be cutting its administration charges by 20% beginning this quarter and up to the end of the year.
At its development, Emirates REIT was viewed as a spearheading move in Dubai’s property market, and both its 2014 IPO and 2017 Sukuk produced critical investor interest. What these assets do is unite numerous investors into prime real estate investment options and consequently make more profundity for the more extensive market.
In fact, the order book of the Sukuk was raised at $1.1 billion and was 2.5 times oversubscribed by “90 global investors”.
Voluntary decision
In Saturday’s statement, a top official at Equitativa, the fund manager, had defined what the new Sukuk certificates would mean. “This is a voluntary transaction designed to support the Sukuk holders and is the most investor-friendly option we could envision, which provides security over all the properties we could mortgage to our new Sukuk holders,” said Sylvain Vieujot, CEO of Equitativa. “Further to the recent announcement of a 20 percent reduction in the management fee, Equitativa views this transaction as another opportunity to demonstrate our stewardship of the company.”
Will need convincing
The worth of the security package proposed is $280 million. “With the recovery of the Dubai real estate market, and the steps were taken by Emirates REIT to increase its occupancy rates, we expect the valuation of the security package to register sustained improvement going forward, hence providing added coverage to the Sukuk holders,”
Bondholders meeting today will decide whether that’s enough.