By Shane McGinley
Government developer has begun discussions on terms of an $8bn loan due in 2015
Dubai government-owned Nakheel, the master developer behind manmade island projects such as Palm Jumeirah and The World, is in talks regarding renegotiating the terms of its upcoming $8bn loan repayments as it “doesn’t want to be in a desperate position in 2015,” its chairman said.
Nakheel was one of the biggest developers hit by the global financial crisis in 2008, which saw prices in Dubai fall by up to 60 percent and nearly half of projects stalled or cancelled. With renewed confidence returning to the market, the developer is on course to deliver an estimated 3,000 units this year and has a number of major projects in its pipeline.
"There is a strong pipeline of Nakheel projects under development across the residential, retail leisure and hospitality sector with an objective of developing assets that are in demand and increasing the pool of cash generating assets," it said in July as it reported it made a first-half net profit of AED1.2bn ($327m), up 57 percent on the same period last year.
With revenues for the first half of the year reaching AED4.23bn, up 36 percent, the upcoming projects on its books at the moment include the Nakheel Mall and Hotel, The Pointe at Palm Jumeirah, the extension of Dragon Mart and Ibn Battuta Mall, and residential projects including Palma Residences, Palm Views, Jumeirah Park, Jumeirah Islands, Jumeirah Village and community centres at Discovery Gardens and Jumeirah Park.
With mounting revenues and profits, the healthy balance sheet will help the state-owned developer to put a dent in its debts left over from the boom years. Chairman Ali Rashid Lootah said the firm was well funded and, despite engaging in early talks with banks ahead of $8bn due in 2015, it company was in not “desperate” to renegotiate.
Since restructuring in August 2011, Nakheel has paid over AED1.3bn in loan interest and sukuk profit payments. The company has also made cash payments of around AED11.3bn to trade creditors and contractors since the restructuring began.
“We’re not desperate... We’re having serious discussions. It will be a loan with an extended period and better terms,” Lootah was quoted as saying in an interview with The National.
“We have enough resources to substantiate our loan. We have plenty of time. We have two years. People were questioning why we are starting talking early. We don’t want to be in a desperate position in 2015.”
In July, it was announced Dubai will liquidate scores of cancelled property projects and use the funds to repay investors who lost billions of dollars in the emirate's real estate market, state news agency WAM reported.
A decree by Dubai's ruler Sheikh Mohammed bin Rashid al-Maktoum said a special legal committee would be established to settle disputes related to projects that had been officially cancelled by the Real Estate Regulatory Authority (RERA).
About 217 property projects were cancelled in Dubai between 2009 and 2011, data compiled by RERA showed last year. They included a Tiger Woods-branded golf course and a kilometre-high tower to be built by state-owned developer Nakheel.
Dubai is now recovering from the crisis and property prices have begun to rebound, but the legacy of unpaid debts and unsettled contracts could weigh on the recovery.
Several state-funded mega-projects such as Nakheel's Palm Deira, Palm Jebel Ali and the World, a complex of man-made islands, were sold to investors but later stalled. They will not be handled by the new committee since they have not been officially scrapped, merely delayed indefinitely.
Given that Nakheel seem to be able to [ahem] "renegotiate" after the fact with buyers, suppliers and bankers, this leaves me with 3 questions:
- who in their right mind would buy off-plan from Nakheel?
- who in their right mind would agree to work as a contractor for Nakheel on terms that Nakheel would accept?
- who in their right mind would lend money to Nakheel to finance their new projects?
Answers on a postcard please.......