x Abu Dhabi, UAEFriday 19 January 2018

Developer Nakheel prepares to issue Dh5bn worth of Islamic bonds

Banks are setting up custodial services for Islamic bonds Nakheel is using to pay dues to contractors as a deal on the property giant's restructuring inches closer.

Banks are gearing up to handle about Dh5 billion of Islamic bonds to be issued to contractors and other trade creditors by Nakheel as part of its restructuring.

The Islamic bonds, or sukuk, are a prime component of the property giant's reorganisation, made necessary by the global financial crisis and the downturn in the local property market. After months of piling up unpaid bills, Nakheel last year began paying cash to contractors owed Dh500,000 (US$136,130) or less. Those owed more were to get 40 per cent in cash and 60 per cent in the form of sukuk shares returning 8 per cent profit per year.

With Nakheel expected to issue the sukuk in the weeks ahead, banks are beginning to advertise custody services to contractors set to receive them. Once the sukuk is issued, contractors must nominate a custodian for their shares, typically a division of a large bank.

HSBC said last month it would waive custody fees for six months on the sukuk, and Standard Chartered said yesterday it had received an "overwhelming response" to its earlier offer of a "subsidised tariff" and assistance in setting up accounts.

A Standard Chartered customer representative said he expected the sukuk to be issued "within three weeks' time", but that Nakheel had not yet given the banks a date. A Nakheel spokeswoman said the issue would probably take place by the end of next month.

"We expect to be concluded by the end of the second quarter," the spokeswoman said.

At present, Nakheel has more than 90 per cent approval from its trade creditors on the long-awaited sukuk issuance, according to its most recent announcement, and it is aiming for 95 per cent before proceeding. The sukuk has been pushed back numerous times since last year, pending the full approval of creditors.

Ali Lootah, the chairman of Nakheel, said in March the company had already paid out Dh4.6bn in cash to contractors under its restructuring. He said at the time he expected the sukuk to be worth a total of about Dh5bn.

As the sukuk inches closer, Nakheel is also working on a $10.9bn debt restructuring deal with its banks. That follows a separate $24.9bn debt restructuring at Dubai World, Nakheel's parent company.

Nakheel, which is in the process of being separated from Dubai World, hopes to wrap up both the debt restructuring and the sukuk by next month. Righting the company's financial ship is a priority both for the Dubai Government, which owns Dubai World, and the emirate's property market.

Nakheel is Dubai's largest master developer and was behind a large swathe of the emirate's modern development boom. It built the Palm islands, The World archipelago and numerous residential and commercial developments.