Arabtec is to receive its first major cash payment from Nakheel since the Dubai World-owned developer revealed its plans to restructure about US$10.5 billion (Dh38.56bn) of debt. The payment could pave the way for work to restart on 1,500 homes in Dubai.
The exact amount of the payment has not been disclosed but the country's biggest builder is to receive 40 per cent of what it is owed by the developer of the Palm islands. The news comes just over a week after Nakheel said it had reached an agreement with 75 per cent of its trade creditors and would settle Dh4bn of claims within two weeks. "We're delighted to report that the transfer has been made and it will probably reach our account today [Thursday]," said Riad Kamal, the chief executive of Arabtec.
The payment means Arabtec will soon be able to restart work on the stalled housing development Al Furjan. "We never doubted for a minute that our dues would not be settled and will be delighted to continue with the project once we have been instructed to do so," Mr Kamal said. The payment is part of an offer made to trade creditors in March when the Dubai Government said it would pump $8bn into Nakheel.
Under the deal, contractors were offered 40 per cent in cash and 60 per cent in the form of tradable securities, with a 10 per cent yearly return. Nakheel needed to secure the approval of 65 per cent of its trade creditors to start paying its major creditors under the terms of the offer. The developer also needs to have 95 per cent of all its trade creditors on board before it can start the second phase of payments in the form of tradable securities.
Ali Rashid Ahmed Lootah, who was appointed the chairman of Nakheel in March, replacing Sultan Ahmed bin Sulayem, said last week this "would happen soon". The company, which did business with more than 1,000 contractors, suppliers and subcontractors, has also started paying its smaller creditors that are owed Dh500,000 or less. "It undoubtedly helps confidence in the market and it's a good sign that Nakheel is sticking to its promise," said Nicholas Maclean, the regional head of CB Richard Ellis, a property consultancy.
Other major construction companies, including the UK's Halcrow and WS Atkins, have signed the deal. "We have signed the document. It's gone back to Nakheel," said David Yaw, the managing director of Halcrow for the Middle East. "We're waiting for payment, which we hope to get within the month of July." Keith Clarke, the chief executive of WS Atkins, which designed the Trump International Hotel and Tower, said last month that his company had been among the "early signers".
Dozens of Nakheel projects came to a standstill at the onset of the financial crisis, leaving contractors struggling to get paid. Al Furjan, a villa community on which Arabtec stopped working in January, is among six priority projects that Nakheel said would resume soon. Arabtec was awarded a Dh2.99bn contract to build 1,500 villas at the development in June 2008, and had built 550 when work stopped.
The company's shares rose 1.1 per cent yesterday, closing at Dh1.73. Nakheel will also restart work on Jumeirah Park, Jumeirah Village, Jumeirah Islands Mansions, Jumeirah Heights Clusters and Al Badrah. Still, while the news that Nakheel is paying its contractors is good for confidence, the developer continues to face funding pressures. The Singapore transport company SMRTsaid yesterday the developer had terminated its contract for the operation and maintenance of the Palm Monorail, which connects the base of Palm Jumeirah with the Atlantis hotel.
Saud Masud, the head of property research at UBS in Dubai, said Nakheel's payments to contractors would not be a "game changer" for overall conditions in the construction sector. "It's a good thing that they're getting paid but the issues are bigger," Mr Masud said. "There are backlog challenges and other customers that need to pay." @Email:firstname.lastname@example.org