Zabeel Investments, a holding company owned by Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, is in talks with its creditors to restructure around Dh6 billion (US$1.63bn) of debt, according to financial sources in the emirate.
The company, which has interests in Dubai property as well as stakes in local and international businesses, has been talking to creditors for several months.
Extension and restructuring of existing terms are being discussed, as is a potential new capital injection to complete projects already under way, as well as a possible programme of asset disposals.
Zabeel has missed some repayments of loan principals but has mostly met interest payments, according to a source familiar with the situation. A Zabeel executive declined to comment because the company is privately owned with no public equity or rated debt instruments.
Emirates NBD, Union National Bank and Commercial Bank of Dubai are among the local creditors, the source said. HSBC is the only international bank involved, but for a relatively small amount. Most of Zabeel's liabilities are bilateral arrangements with local banks.
Zafar Nazim, an emerging markets research analyst with JP Morgan in London, said: "This is a new development that may raise the question again about the emirate's total indebtedness." Zabeel's problems are not of the same magnitude as those of Dubai World or Dubai Holding, but they indicate the extent to which the global financial crisis affected virtually every part of the emirate's financial infrastructure.
The company, founded in 2006, owns the Jumeirah Zabeel Saray hotel and the Tiara Residence on the Palm Jumeirah, and has a 50 per cent stake in the Tiara United Towers development on Sheikh Zayed Road in Dubai. It also owns the media company Zed Communications, and has a share stake of some 4 per cent in Abraaj Capital, the regional private equity group.
Overseas, Zabeel is a joint venture partner with Light Group, a leisure and entertainment company based in Las Vegas.
An individual close to the situation said bankers have already been presented with a business plan, which is being considered. "It's by no means as big as Dubai World, but in some ways it's more complex," said one banker.
Another person familiar with the talks said: "There is no sukuk involved or anything like that, but the banks have got a bad taste in their mouth after Dubai World and Dubai Holding. They are not being as friendly as we could hope."
The person said banks were resisting the request to provide fresh funds to complete projects, leaving Zabeel with the options of seeking expensive mezzanine finance or joint ventures.
A deal might be signed towards the end of next month, he indicated, adding that there was no firm timetable.
As a private company, Zabeel is not entitled to Government aid via the Dubai Financial Support Fund. Some equity assets have already been sold, including shares held in DP World, the ports and logistics group, to cover interest payments and running costs.
It is also believed bankers are coming under pressure from the UAE Central Bank to make provision for their loans to Zabeel.
Zabeel was built up by its chairman, Mohammed Ali al Hashimi, but he no longer has a role at the company. Faisal Bujesaim, a former official from the Dubai Department of Finance, was appointed chief executive last May, once Zabeel's difficulties were becoming apparent.
He declined to comment or to name financial advisers hired by Zabeel. Banks declined to comment on the grounds of private-client confidentiality.