ABU DHABI // Nakheel, the Dubai property developer, received Dh3 billion (US$816.8 million) in financial assistance from Dubai World in the first half of 2009 as it dealt with a cash flow shortage and mounting obligations, according to a financial statement released today. Details of the support comes a day after Abdulrahman al Saleh, the director general of the Dubai Department of Finance, said that Dubai World had been lent roughly Dh9bn this year from a fund created to help Dubai companies impacted by the economic downturn.
The debt situation at Nakheel, and its parent company, Dubai World, have been under close scrutiny since the Dubai Financial Support Fund announced on Nov 25 that it was taking over the restructuring the companies and would seek a six-month reprieve from creditors. Nakheel has a US$3.52bn Islamic bond coming due on Dec 14. The company has not given details about how it will deal with the bond, but Dubai World has called for a restructuring of $26bn in debt. Bondholders have started forming a group to respond to the possibility that Nakheel will not pay on time. The bond is backed by assets at the Waterfront project, which have dropped in value since the bond was issued in 2006.
Ian Munro, an analyst at MAC Capital Advisors in Dubai, said Nakheel's financial statement "highlights the precarious point their cash flow situation has reached". Nakheel posted a loss of Dh13.43bn from Jan through the end of June mostly because of write-downs of the value of its large land bank as prices across the country dropped by as much as 50 per cent, according to the financial statement. Revenue dropped by 78 per cent to Dh1.97bn, compared to Dh9bn in the same period in 2008. The company said it wrote down the value of land and properties that were still under construction by Dh12.2bn during the period.
Restructuring is already underway, with lay ffs of staff and slowdowns of its projects, Nakheel said. "Considerable effort has been taken to reduce capital expenditure by scaling down or slowing some development activities to beyond 2012," the financial statement said in an introduction. "Furthermore, Nakheel is phasing the delivery of associated infrastructure in accordance with market demand and the stage of development of individual projects, thereby allowing the company to reduce its overall levels of immediate and medium term cash investment."
Mr Munro said that Nakheel was likely to face further impairments of its land value in the second half of 2009 and might require more cash injections to keep operating. email@example.com