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US investment funds buy $1.1bn bad loans from UAE bank

Abu Dhabi Commercial Bank will register a gain of AED490 million Wam
Abu Dhabi Commercial Bank will register a gain of AED490 million

Investment management firm Davidson Kempner said that investment funds it advises have acquired a non-performing loans portfolio from UAE-based Abu Dhabi Commercial Bank worth AED4.2 billion ($1.14 billion).

“The transaction represents the first sale of a significant portfolio of non-performing loans by ADCB and is thought to be the largest such transaction effected to date in the UAE,” the US-based firm said in a statement.

The portfolio comprises 44 corporate loans to UAE-based small and medium businesses.

Seapoint Capital Limited is special servicer and Reviva Capital is loan servicer for Davidson Kempner, the hedge fund said.

Targeting Gulf

International investors focused on distressed debt said they are eyeing opportunities in the Gulf region, Reuters reported.

Higher interest rates globally and a strong US dollar – to which most regional currencies are pegged – are translating into higher borrowing and other costs in the non-oil private sector.

Corporate restructuring opportunities have improved with the introduction of legislative changes, which are bringing rules more in line with global standards. Some successful examples of these changes have also reduced the stigma attached to insolvency.

For example, Saudi Arabia, the region’s biggest economy, introduced a bankruptcy law in 2018 and the UAE enacted one in 2016 and amended it in 2020.

Executives from distressed debt investors SC Lowy and Fidera have also said they plan to set up a presence in the UAE this year.

“Historically, the sellers of debt have been foreign banks, but local banks are beginning to understand the opportunity to get rid of some of the debt on their books,” Dilip Massand, chief executive officer of UAE-based Phoenix Advisors, earlier told Reuters.

“The learning curve is the pricing, and the matching of expectations between the buyers and the sellers,” Massand said.

About $60 billion in Gulf corporate debt is due to mature in the next three years, about 80 percent in the UAE and Saudi Arabia, according to Samar Haydar, head of GCC corporates at Fitch Ratings.

Berkay Oncel, head of investments for the Middle East at SC Lowy, said his firm is looking at various opportunities in the region.

“Banks are becoming more proactive in managing their loan books and we are seeing more interest to explore secondary market alternatives rather than legal enforcement,” Oncel said.