The profit rate for National Bonds, the Sharia-compliant investment scheme with monthly prizes, dropped by about half to 3.54 per cent last year compared with 2008. Declining asset prices in the Emirates and the global economic slowdown are likely to have contributed to the decline in profitability, analysts said. National Bonds is invested in two large property projects in Dubai, one of which has had no substantial construction work yet.
Mohammed Qasim al Ali, the chief executive of National Bonds, said the company did well in a difficult market. "With this annual profit rate of 3.54 per cent, combined with our prize draws totalling Dh60 million-plus (US$16.3m) in the UAE, we have also kept our promise of offering the best returns to our bondholders even during a tough year in 2009," he said. "The cumulative profit rate of 16.64 per cent is ample testimony of our ability to meet our bondholders' expectations over the last three years and for the future."
National Bonds - which is owned by the Government of Dubai, Emaar Properties, Dubai Bank and Dubai Holding - uses the proceeds from selling Dh10 bonds to make investments. It pays out a profit at the beginning of each year based on the performance of its holdings in the previous year. Bond holders receive a minimum of 20 per cent of the profit, while the company keeps the remainder. The profit is given to investors in the form of new bonds. National Bonds also holds a weekly draw with a top prize of Dh1m.
The company, which was founded in 2006, has assets of Dh3.7 billion and 560,000 bondholders, it said yesterday. National Bonds does not normally disclose its portfolio, but it has revealed in the past that it invests half of its assets in development and infrastructure projects and half in short-term, Sharia-compliant investments such as sukuk. A chief investment officer and a three-member Sharia board oversee the investments.
While the rate dropped significantly from the 7.07 per cent it paid to bondholders in 2008, most investors will be relieved to see any profit at all, said Aadil Kadri, a financial adviser at Continental Financial Services in Dubai. In the current economic climate, "people are not really worried about what is the percentage, but that they're getting something", he said. "We understand it is less compared to last year, but it has come with a positive return at least."
Part of National Bonds's difficulties could have to do with two property developments, which are both behind schedule. The Dh1.5bn Skycourts was sold out in 2006, but it has since been delayed by a year and has yet to be delivered to buyers. The six-tower development comprised 2,300 apartments. Deyaar Development, which manages the construction of National Bonds's property projects, said the apartments would be delivered by the third quarter of this year.
The company's second development, the Dh800m Flamingo Creek project at The Lagoons, has seen no substantial construction work. Sama Dubai, the master developer of The Lagoons, has been merged into Dubai Properties and the new entity has made no announcements about the future of The Lagoons. Deyaar said the project had not been cancelled. National Bonds's other investments include the property management company BCS Strata Management Services, the convenience store chain SouqExtra! and a portfolio of schools.
* additional reporting by Asa Fitch @Email:firstname.lastname@example.org