Dubai's economy passed important milestones yesterday as the Dubai World conglomerate presented its final debt restructuring plan to bankers while the emirate's largest developer posted a big rise in quarterly profits. After more than a year of subdued property sales, Emaar Properties posted a net profit of Dh802 million (US$218.3m) for the second quarter after a loss of Dh1.2 billion in the same period last year.
Profits also rose 6 per cent from the first quarter this year as homes were delivered in Burj Khalifa, the tallest tower in the world. Dubai World, meanwhile, unveiled a debt restructuring proposal to its remaining 66 bank creditors, after which the company said it "expects to complete the restructuring over the coming months". Analysts hailed the restructuring talks and Emaar's profits as a sign that things were looking up in Dubai.
"It's a move in the right direction," said Robert McKinnon, the chief investment officer at ASAS Capital. "However, it's not an overnight switch meaning that everything will be perfect and rosy in Dubai." Revenue from Emaar's retail and hospitality divisions, the opening of the Armani Hotel in Burj Khalifa in April and contributions from overseas projects also helped to boost the developer's income.
"A big portion of revenues has come from Dubai Mall and other leasing space in Dubai as well as their hotel portfolio," said Majed Azzam, a property analyst at Al Futtaim HC Securities. "There are indications of recovery in the tourism industry in Dubai, which saw occupancy levels rising towards the end of the first quarter and into the second quarter over last year." Restructuring talks between Dubai World and its creditors started in November when the conglomerate announced it would seek a standstill on debt repayments.
Dubai World, which owns the property developers Nakheel and Limitless, yesterday made a presentation to bankers at a meeting at the Atlantis Hotel after its seven biggest lenders agreed to the broad terms of the plan on May 20. Having secured the approval of the seven banks to move forward with a plan to restructure $14.4bn of bank loans into five and eight-year loans, the conglomerate was seeking agreement from 66 smaller creditors that hold about 40 per cent of the debt the company is looking to restructure.
Under the plan, $4.4bn is to be repaid over five years at a flat 1 per cent interest rate. Another $10bn is to be paid out over eight years, with terms that include government guarantees, a payment-in-kind at the end of the loan and extra interest for banks that lent to Dubai World in dirhams. In a document outlining the plan and seen by Reuters, Dubai World said the repayment of the initial $4.4bn would be financed by its Istithmar World portfolio and its Infinity World investment arm - two segments that were ringfenced from the conglomerate's debt proposal.
The meeting came a week after Nakheel, the developer of the Palm and World projects, presented financial creditors with proposals to deal with billions of dollars of debt. Nakheel owes about $10.5bn to banks, contractors and customers, with financial creditors thought to account for about $4bn of that total. Trade creditors have already started to receive payments as part of the first phase of its repayment plan.
It was also announced earlier this month that Limitless, which had planned to build an 11km canal through Dubai, would come under the management of Nakheel although it is unclear how Limitless's own debts would be repaid. Property sales in Dubai were badly hit by the financial crisis, with prices falling as much as 50 per cent and further falls are predicted as new property comes on stream. "Emaar is more healthy than other real estate companies as they got into the game earlier and didn't get caught in the middle of the cycle like other property companies," said Mr McKinnon.
"But there are a lot of issues with smaller developers and smaller property units that need resolving."
* With additional reporting by Tom Arnold