Tabreed, a district cooling company based in Abu Dhabi, is nearing an agreement with creditors on a restructuring plan worth more than Dh5 billion (US$1.36bn).
Sources say Tabreed, which was unable to keep up debt payments last year after the property market declined and developers scaled back, is just weeks away from a possible restructuring pact.
The company spent billions of dollars building cooling plants, but amid the downturn, revenue from many of its projects did not materialise as expected. Tabreed lost about Dh1.2bn in 2009 as the result of a fourth-quarter write-down before returning to profitability last year.
"We've now got a structure everybody grudgingly agrees to, and banks have been asked to give approval," said a source familiar with the talks who declined to be named. "Hopefully there will be an approval in the next two to three weeks."
Under the agreement, Tabreed's bank debt of about Dh3.7bn plus Dh1.3bn owed to Mubadala Development, which owns about 11 per cent of Tabreed, would be rescheduled into two new loans, according to sources familiar with the proposals.
Mubadala is a strategic investment company owned by the Abu Dhabi Government.
The restructuring would not reduce the amount Tabreed owes but would push back maturities and give the company extra time to repay, the sources said.
Mubadala is also expected to pump in up to Dh2.4bn to help Tabreed address debt and move forward with a reorganisation it started in late 2009.
Mubadala provided Tabreed with a short-term Dh1.3bn bridging loan last year, a figure included in the amount it expects to inject.
In addition to its bank borrowings, Tabreed has a Dh1.7bn Islamic bond, or sukuk, that converts into shares in the company in May. It also has a $200 million sukuk due in July.
The deal has yet to receive a final sign-off and its terms could change, but the sources say it is likely to go through as currently envisaged.
Mubadala's injection is to come in the form of a bond that converts into shares of Tabreed, which is listed on the Dubai Financial Market.
"It's clear Abu Dhabi is adamant on cleaning house and sorting out the debt situation with some of its strategic companies," said Ahmad Alanani, the director of fixed income sales for the region at Exotix in Dubai. "In the case of Tabreed, a cash injection was unavoidable."
Tabreed's convertible bond had been a major sticking point in its restructuring talks, according to people familiar with the matter. The plan for Tabreed to pay interest on the bond rankled banks that preferred to preserve as much of the company's cash as possible to service its obligations to them.
Mubadala declined to comment on the restructuring, which officially began last May after Tabreed missed a debt payment. Tabreed said it was "not in a position to comment on the ongoing negotiations and will provide an update in due course".
The Tabreed restructuring is one of many across the UAE after the financial crisis. Most have taken place in Dubai, where property prices dropped by up to half in some places after the market peaked in 2008, but companies based in Abu Dhabi have not been entirely insulated. In addition to the announced support for Aldar and the Tabreed restructuring, Al Jaber Group, a privately owned construction company, is in discussions with banks to extend debt repayments.
This story has been corrected since original publication. In the original story we stated that Mubadala Development owned a half stake in Tabreed. Mubadala has since sold down its shareholding in the cooling company to around 11 per cent.