Bankruptcy law change lures private credit to UAE

Emirates Hospital Group

• Previous regime barrier to entry
• Increase in interest since change
• Dedicated bankruptcy court

A new bankruptcy law which came into effect in the UAE earlier this year is attracting an influx of private credit into the country after boosting investor confidence.

Private credit is non-bank lending to businesses, by private investors.

Introduced on 1 May 2024, the new regulations shook up insolvency laws that had only been in force for eight years, since the country’s last overhaul of its bankruptcy rules in 2016. 

In the six months since the new law came into effect, three leading companies have restructured under the new regime. 

Most recently, in early November, Emirates Hospitals Group announced a successful AED 3.5 billion ($953 million) restructuring, ratified under the new UAE bankruptcy law. 

It came after a years-long struggle to stabilise the company, which included a  Dh150 million ($41 million) financing from Fidera, an investment management company.

William Watson, a debt finance partner at the Dubai office of the law firm White & Case, said that there has been an increase in interest from international private credit providers who help fund these restructurings since the law has been enacted. 

White & Case

Watson said that although deal flow is not at the same level as bank-led transitions, the amount of interest in the region has grown exponentially in the last 12 months.

“Having those high-profile restructurings occur so quickly after the law is open gives a lot of confidence to the business and creditor community,” he said.

Watson said that while it would take longer than six months to evaluate the efficacy of the new UAE bankruptcy law fully, “a lot of people in the restructuring community have gained a lot of comfort from those transactions closing”.

He said that five or 10 years ago, many international funds would have viewed the previous regime as a potential barrier to entry. “That’s not the case now,” he said.

Among fresh private credit flows, Citigroup, the Abu Dhabi Investment Authority, and Apollo, an alternative asset manager, announced a $25 billion private credit and direct lending programme in September. 

In November, Andalusian Private Capital, a US private equity company which manages $500 million in assets, announced plans to open a permanent presence in the UAE. 

At the Future Investment Initiative in October, Ted Koenig, CEO of Monroe Capital, another US asset manager, told AGBI that private credit is going to form a 20 percent allocation to most institutional investors and sovereign wealth funds.

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Before Emirates Hospitals Group’s successful restructuring, the energy firm RAK Gas restructured its capital structure to the tune of AED4 billion. Additionally, the engineering firm Drake & Scull International, which has been struggling since 2018, has restructured AED3.5 billion in debt under the new regime. 

Among other changes, the new bankruptcy law in the UAE introduced a new insolvency court and a more structured process for companies facing financial distress.

Amir Ahmad, a partner at law firm Reed Smith, said that one of the main changes under the new law has been the introduction of a specialist court and bankruptcy administration, headed by a court of appeal judge.

“We believe that this centralisation of bankruptcy specialists will help to promote much-needed consistency in the UAE,” Ahmad said.

“The introduction of a dedicated court means that entities working through insolvency issues will have a dedicated team of specialists already familiar with similar cases working on their case, speeding up proceedings and ensuring consistency,” he said.

Pietro Castronovo, head of private capital and restructuring for the IMEA region at the management consultancy Oliver Wyman, said that from a business perspective, the UAE’s new bankruptcy laws represent a significant step forward.

“In my view, any initiative that promotes the use of formal proceedings to deal with corporate crises is crucial to progress,” Castronovo said.