Nakheel, the developer behind Dubai's palm-shaped islands, will hand over Dh6 billion (US$1.63bn) worth of Islamic bonds to contractors by the end of next month.
The move is one way in which Nakheel is trying to pay for work already completed on its ambitious developments, which include the three Palm islands and The World, a man-made archipelago off the coast of Dubai in the shape of a map of the globe. Nakheel is also behind several residential projects on the western end of Dubai that contain thousands of villas.
The company stopped paying contractors when the emirate's property bubble burst last year and Nakheel's credit-driven expansion ground to a halt. Dubai World, Nakheel's parent company, subsequently underwent a wholesale restructuring of its business. It reached an agreement earlier this year with its banks to delay repayment of $24.9bn of debt for between five and eight years.
Nakheel's Islamic bond, or sukuk, was announced in April. The developer is to pay 60 per cent of large claims by contractors and other trade creditors with sukuk shares and the remainder in cash. The sukuk is to come with a profit rate, the Sharia-compliant equivalent of interest, of 8 per cent per year. It is to mature in five years.
Ali Rashid Lootah, Nakheel's chairman, told Al Bayan, an Arabic-language daily newspaper, yesterday: "We are confident that we can close the file during the coming 45 days." A Nakheel spokeswoman confirmed the report and the Dh6bn size of the planned sukuk.
Almost all of Nakheel's contractors have agreed to the repayment terms, according to company announcements. Most recently, Nakheel said in October it had already paid Dh3.4bn in cash to trade creditors to settle claims. Under the plan, contractors owed Dh500,000 or less are being paid in cash, while those owed more get cash as well as sukuk shares.
"Nakheel has approximately 85 per cent … of acceptances and is working closely with the rest of our trade creditors to achieve its 95 per cent acceptance of all payables and claims by the end of the year," the company said in October. Mr Lootah, who was appointed chairman of Nakheel in March to oversee its reorganisation, told Al Bayan that while current acceptances still stood at 85 per cent, "the remaining 10 per cent should not be hard to get on board".
When Nakheel issues its sukuk next year, many contractors are expected to sell it on to global investors in exchange for more cash. Thomas Barry, the chief executive of the UAE construction giant Arabtec, told Bloomberg in September that contractors were "in a very bad situation with regard to cash flow because of nonpayment from many entities".