By Dinesh Nair
Market is expecting a restructuring from Nakheel, rather than a 100% redemption.
Troubled Dubai World unit Nakheel's 2010 bond prices indicate that investors have ruled out full repayment, with a deep discount or radical restructuring the most likely options, analysts said.
Dubai surprised global markets with the depth of its debt problems in November, then again a month later when it paid in full $4.1 billion of Nakheel's debt. This time around, however, investors do not expect any pleasant surprises.
Modieddine Kronfol, managing director, Algebra Capital, Dubai, said: "The market is expecting a restructuring from Nakheel. They are not really expecting a 100 percent redemption."
The property developer, whose holding company Dubai World is seeking to restructure $22 billion of debt, has a $980 million Islamic bond maturing in May 13, 2010.
In February, a source told Reuters that all options were open for the May Nakheel bond, including offering new paper for existing debt or, if needed, administration.
The bonds traded on Tuesday at 55 cents to the dollar, according to prices available from trading platform Deutsche Bank Autobahn. On that basis, they would yield more than 700 percent if they were fully repaid.
Andre Andrijanovs, corporate analyst, Exotix, a London based frontier market specialist, said: "A lot of the creditors must be hoping that a full repayment, like in 2009, would be made, but the chances of that are low."
Andrijanovs said that unlike Nakheel's 2009 bond, the one maturing in May does not carry a guarantee from its parent Dubai World and hence lenders have no recourse to Dubai World assets.
Analysts said Nakheel's May bond might see some interest from distressed buyout firms and hedge funds who expect to benefit from the cheap prices, but volumes on the bond remain low.
Kronfol said: "It (Nakheel Sukuk) is not attracting real money flows. The interest is mainly from hedge funds, distressed buyers, and other generally foreign institutions. You don't see long term buyers like pension funds showing any interest in the Nakheel or Dubai story."
One regional banker, who did not want to be named, said creditors could be offered extended maturities, but a full repayment was unlikely.
He said: "It (2010 bonds) is not widely held. There is a fundamental difference between the 2009 and 2010 bonds with regard to the amount involved and liquidity. With the current one, you will not get the same chances you got in December." (Reuters)