Nakheel, the struggling Dubai World-owned property developer behind the emirate's Palm islands, says it has paid Dh3.4 billion (US$926 million) to contractors and other trade partners, and appointed independent consultants to evaluate claims against it.
Nakheel is to receive $8bn in new funds under a recapitalisation plan, according to a statement from the Dubai Government in March.
The Government will convert an additional $1.2bn of its own claims on the company's assets into equity. "Today's announcement marks significant progress in our recapitalisation plan, following on from the initial payments to trade creditors of Dh500,000 or less, which commenced in March," a Nakheel representative said. Smaller trade creditors are to be paid in cash, a process Nakheel has already started with the support of the Government.
Businesses owed larger sums are to be paid 40 per cent in cash and 60 per cent in the form of an Islamic bond to be issued by the end of the year. The bond, worth an estimated Dh6bn, will pay a 10 per cent profit rate, the Shariah-compliant equivalent of interest. The developer, which fell on hard times after property prices in Dubai stagnated and financing dried up in the wake of the financial crisis, has received approval from trade creditors representing about 85 per cent of the total claims against the company.
Many of those claims represent money due to contractors for work already completed. The company needs to receive 95 per cent acceptance of the restructuring proposals before finalising the deal and issuing the Islamic bonds.
"Following the success of having approximately 85 per cent (by value) of acceptances from our trade creditors, we have appointed independent claims consultants to commence the assessment and evaluation of the estimated claims submitted by the various trade creditors," the company said. "This is another important milestone in the finalisation of the restructuring process."
Once its restructuring is complete, Nakheel is to be spun off by Dubai World, which recently secured approval from about 99 per cent of its bank creditors on its $24.9bn debt restructuring.