Emirates seek to give up assets on bond default

DUBAI: Dubai flag-ship carrier 'Emirates' ground-breaking attempt to allow investors in its planned dollar bond to seize assets if it cannot repay could be undermined by conflicting laws in the country.

Emirates which are wholly owned by the Dubai government's investment arm have exempted investors from a decree that blocks the seizure of its assets in a default according to its bond prospectus.

The move, unusual for Dubai government-linked firms, may have been aimed at easing investors' concerns about Dubai, whose 2009 debt crisis brought the emirate to its knees.

But the Arab world's largest carrier warned there were "uncertainties" on whether the exemption would stand given another Dubai law that gives the government and linked firms immunity.

Emirates Chairman Sheikh Ahmed bin Saeed al-Maktoum, uncle of the ruler of Dubai, made the exemption on Feb. 28 at a time when the carrier was first testing the market for a potential bond issue.

Emirates, one of the region's most recognised brands globally, postponed that plan after uprisings in North Africa made rates more expensive.

The prospectus noted a 1985 decree that founded Emirates, has provisions that prohibit the seizure of its assets to meet obligations owed by the carrier.

"However, the chairman of Emirates has issued an irrevocable written decision, dated 28 February 2011, which exempts the noteholders from these provisions," the prospectus said.

"Notwithstanding this, there are some uncertainties under the laws of Dubai as to the effectiveness of the exemption afforded by the decision as a result of Dubai Law No. 3 of 1996 on Government Lawsuits.

"The Dubai Lawsuit Law grants the Government of Dubai (which includes its corporations) immunity in respect of its assets."

Emirates picked four banks for a possible dollar bond issue last week, on the back of posting record profit as it seeks to raise cash for massive expansion plans.

Copyright Reuters, 2011