A dispute between a Kuwaiti investment company and the National Bank of Umm Al Qaiwain (NBQ) is set to reach the highest court of appeal in the country tomorrow, with the stakes high for both lenders.
NBQ will make one last plea to overturn an earlier court decision forcing it to return a payment worth about US$315 million (Dh1.15 billion) to Global Investment House.
Not so long ago it would have been a mismatched encounter. Global was among the Gulf's biggest investment banks, and NBQ is a tiny lender with assets of Dh12.5bn, but analysts say the combination of the financial crisis and the court dispute has left both banks "squeezed into a corner".
NBQ took a deposit of $250m from Global in the summer of 2008 for a capital raising that never materialised following the outbreak of the financial crisis.
Global sued when it was unable to reclaim the funds, but NBQ claims the sum was an advance payment on a total of Dh2.3bn owed for a convertible bond issuance. The sale would have resulted in Global being poised to take a 20 per cent stake in the bank.
A court verdict in July last year ruled that NBQ return the deposit, with additional interest of 9 per cent since February 2009. That verdict was upheld after NBQ appealed earlier this year.
The case has proceeded quickly since it was first brought before Dubai's courts last year, said Craig Shepherd, a partner and the head of dispute resolution for the Middle East at Herbert Smith, an international law firm.
"It's a case involving a very considerable sum of money, and a case which seems to have proceeded fairly well," he said.
"This is a case in which Dubai has done a pretty decent job of turning the case around. A case that runs on forever is bad news for everyone, whether you win or lose."
The payment of the funds has been delayed following successive appeals by NBQ, awaiting the bank's final appeal at the Dubai Court of Cassation. The total payment plus interest now amounts to about $315m.
Since the capital raising was first announced, NBQ's share price has fallen 59 per cent, to Dh2.10.
NBQ could not be reached for comment.
Global Investment House has fared even worse during the same period, with its share price dropping 96.3 per cent to 36 Kuwaiti fils. Global was forced to seek a restructuring agreement with its creditors in 2009. However, it has recently been forced to seek an alteration to the agreed terms of the restructuring.
The bank said it met creditors on Thursday to request a deferral on bond interest payments and maturities due in December.
"These modifications are designed to facilitate discussions between Global and its lending banks about a more comprehensive restructuring of Global's debt obligations," the bank said.
Creditors had maintained faith in both banks, said Ahmad Alanani, a director for the Middle East and North Africa at Exotix.
"When NBQ had a loan closed recently … it was very oversubscribed by local banks in the UAE," he said.
For Global, which recently reached an agreement with creditors that paves the way for a second restructuring of its debts, the outcome is no less crucial, Mr Alanani added. "The $250m is a big reason why creditors are playing ball."