Nakheel, the indebted property developer owned by Dubai World, is preparing investors for a "liability management exercise" over the terms of a sukuk due for repayment in May. A source close to the company, who declined to be identified, yesterday confirmed reports that Nakheel was seeking up to date details of its bondholders with a view to informing them of likely new terms of repayment of a US$980 million (Dh3.59 billion) bond due on May 13.
In a request via the clearing house Euroclear, Nakheel asked bondholders to supply details as "this may prove useful in disseminating information to the note holders in the future with regard to a liability management exercise that the issuer may undertake". Nakheel's parent company, Dubai World, is in the process of preparing an offer to creditors over $26bn of debt it has earmarked for restructuring.
Reports last week cited people familiar with the negotiations as saying it was "highly unlikely" that the $980m sukuk, or Sharia-compliant bond, would be fully repaid. In those circumstances, sukuk holders are likely to join the pool of unsecured creditors of Nakheel, which includes the Government of Dubai, some 96 banks and contractors awaiting payment for completed work. The sukuk was issued in late 2007 as Dubai neared the peak of its property boom. It was trading last week at 52.5 per cent of issue value, indicating that investors were expecting a significant discount as part of any proposals Dubai World would put forward over the next few weeks. Advisers to Dubai World said recently they expected to have proposals ready by the end of next month.
The source close to Nakheel did not say why the company was seeking updated information on holders, but it is likely that ownership of the sukuk has largely changed hands in recent weeks. European and American investors ended up as majority holders of the controversial sukuk repaid in full last December with the help of funds from the Central Bank, via the Dubai Financial Support Fund (DFSF). The DFSF is committed to maintaining support to those parts of Dubai World up for restructuring until a standstill agreement is reached or until the end of April. To date, and including the sukuk repayment, some $12bn has been provided to Dubai World and other Dubai entities from the total of $20bn made available by Abu Dhabi since the capital's first loan a year ago.
Meanwhile, international investors will get a further chance to assess the effect of the global credit crisis on the UAE this week when two of the biggest global banks operating in the region publish their financial results for last year. HSBC, for whom the UAE is its biggest market in the Middle East, is likely to announce much higher provisions for impaired loans, according to analysts' forecasts.
Researchers at Citigroup estimate impairments in the Middle East will rise from $279m in 2008 to $699m last year. Most of this will be in the UAE, but HSBC is also likely to suffer impairment charges in Saudi Arabia, where it is one of 100 or so banks affected by the financial problems of Ahmad Hamad Al Gosaibi and Brothers and the Saad Group in the kingdom. Standard Chartered Bank is also likely to report higher provisions in the region, although as the bank combines figures from the Middle East and South Asia they may be harder to identify.
All UAE banks have already reported significant write-offs as a result of the regional financial difficulties. @Email:firstname.lastname@example.org