The developer of the Palm islands will repay Dh3.6 billion (US$980.1 million) owed to bondholders tomorrow as it pushes to seal a deal with hundreds of creditors.
Nakheel will repay latest debt on time
Nakheel will repay Dh3.6 billion (US$980.1 million) owed to bondholders on time tomorrow as the Palm islands developer pushes to seal a deal with hundreds of trade creditors. Dubai World, which is in talks to revise terms and extend maturities on $24.8bn of debt, said in a restructuring proposal tabled in March that it would repay Nakheel bondholders in full.
But the proposal has yet to be accepted by banks, trade creditors and investors, leaving some doubt over whether the company would adhere to its terms and settle the Islamic bond, or sukuk, when it matures tomorrow. With restructuring talks progressing, Nakheel yesterday said it would pay the Dh3.6bn as envisaged under the restructuring proposal with the help of the Dubai Financial Support Fund, formed last year to distribute aid to state-owned companies.
"Nakheel today announces that the Dubai Financial Support Fund has made available sufficient funds to allow for the repayment in full of the sukuk," the developer said in a statement to NASDAQ Dubai, where shares in the sukuk are listed. While Nakheel bondholders look forward to recouping their cash, contractors of the Dubai World unit have yet to be paid. The developer's trade creditors are being offered 100 per cent of their agreed claims, comprising a 40 per cent cash payment and 60 per cent in the form of a publicly tradable security with a 10 per cent annual return. But Nakheel has said it would only start paying contractors once it had secured the consent of 65 per cent of claims from them.
"We've agreed to work with them over the next few weeks to finalise our claims. We have no other choice at the moment," said one Nakheel contractor who did not wish to be identified. During Dubai's building boom, Nakheel tapped into global investors to raise $5.25bn by selling three Islamic bonds, including the one due tomorrow. The company sold a three-year, $3.52bn sukuk in December 2006 that was repaid on time last December. It raised a three-year, $750m sukuk in December 2007 that matures next January.
The $980m sukuk maturing tomorrow was raised two years ago. Analysts yesterday said they had also expected the sukuk to be repaid given shares in the debt were trading at close to their face value. The sukuk was trading at 97.8 fils on the dirham yesterday. Nakheel used money from Islamic bonds to finance its enormous construction projects, many of which involved capital-intensive dredging to reclaim land.
But in the throes of the economic downturn investors and banks became less willing to refinance those large debts, and the projects they financed had not yet reached a stage where revenues from property sales were enough to repay them. Last year's decline in Dubai property prices, up to 50 per cent in some areas, only exacerbated Nakheel's financial woes. Investors in Nakheel's bonds have received what some analysts say was a more favourable outcome than could have been hoped for.
While banks that lent to Dubai World are to be repaid over five and eight years at a below-market interest rate of 1 per cent under the March restructuring proposal, Nakheel's bond investors are to be repaid in full. Ahmad Alanani, a fixed-income specialist at Exotix, a London boutique investment bank that focuses on frontier markets, said the repayment of Nakheel's $3.52bn sukuk last December had erased virtually all doubt the sukuk maturing tomorrow would be repaid.
And with assurances from government officials, including the Central Bank Governor Sultan al Suwaidi this week, that the restructuring negotiations were making progress, Mr Alanani said investors were in a comfortable spot. "The precedent has been set," he said. "The 2009 bonds got repaid and there was no reason for them to get repaid because the market was expecting a restructuring. "I draw a great deal of comfort from the fact that the 2009 bonds got repaid in far worse conditions, and you also have the Central Bank governor saying the deal is moving forward."
Nakheel's next large debt repayment comes due next January, when its $750m sukuk matures. Shares in Nakheel's debt are suspended from the official trading list at NASDAQ Dubai because the company failed to disclose financial statements. Its latest financial statements were for the first six months of last year. Dubai World's next major debt repayment is a $2.1bn syndicated bank loan due next month. Limitless, a property subsidiary that is not included in the debt restructuring, also has a $1.2bn loan due at the end of next month. The company has not said how it plans to handle those debts.
* with reporting by Angela Giuffrida firstname.lastname@example.org