By Claire Ferris-Lay
Firm claims Nakheel failed to warn that land it had purchased had holy land status
A Sharjah-based engineering firm has issued an AED200m lawsuit against Nakheel for failing to warn it that a plot of land it had purchased was subject to holy land status.
Greenfield Trading claims the master developer failed to tell it about the existence of a mosque on the land, which prohibited it from building a hotel and leisure resort on the plot.
“Our client feels that it has exhausted all avenues to try to resolve this issue amicably and, as a last resort, has been compelled to take recourse through the Dubai World Tribunal,” Jonathon Davidson, managing partner of Davidson & Co, who is acting for Greenfield, told Arabian Business in an emailed statement.
Greenfield Trading paid just over AED200m for the plot of land in Nakheel’s Dubai Waterfront development in 2008, the firm said. The company said it was given no prior warning that the land it had purchased included the existence of a mosque, which made “the building of a leisure resort an impossibility.”
Nakheel declined to comment when contacted by Arabian Business.
The Dubai Waterfront project, which added a further 70km to Dubai’s coastline, was billed as the largest waterfront development in the world. The multibillion dollar development was expected to house up to 1.5 million people but stalled in the wake of the economic downturn.
Nakheel, the developer behind the Palm Jumeirah and The World islands, was at the heart of Dubai’s crippling debt crisis in 2008 after a property bust bought the company to its knees.
The firm Aug 24 announced details of its five-year debt restructuring programme, which included the issuance of an AED4.8bn Islamic bond in part payment to trade creditors.
Nakheel offered creditors repayment of 40 percent cash and the remaining 60 percent in the form of an Islamic bond, or sukuk, at a profit rate of 10 percent.
Nakheel said Aug 24 it was restructuring some AED59bn of liabilities, including AED32bn to Dubai government, AED19bn to trade creditors and AED8bn to banks.
The company said it had settled about 60 percent of liabilities linked to buyers in its stalled real estate projects, representing about AED10bn ($2.72bn), by offering investors homes in completed Nakheel projects or a credit switch to another investor or project.
The firm’s chairman said it would deliver 7,982 homes in nine developments across Dubai in the 15 months ending Dec 2012, in projects including Jumeirah Islands, Al Furjan as well as Badrah and Veneto in the Waterfront project.
“Our liability on the long-term projects is approximately AED10bn and we’ve managed to solve and find and accommodate people for a value of AED6bn in 1.5 years,” said Ali Rashid Lootah.
Nakheel, which was previously the property arm of Dubai World, will now be controlled by the Dubai government along with another debt-ridden property firm Limitless, that is restructuring a $1.2bn loan.
Say I spend 200,000 Dhs on a car - I think I would probably go and do all my research, make a few test drives, get an expert to take a look and make sure it was all ok. I'd imagine most people would, if they were going to spend a lot of money on something that would ultimately be an investment.
So imagine how much research and checking a normal person would do if they were spending 200,000,000 Dhs! Makes you wonder about Greenfield, doesn't it?
I presume with all these court cases ongoing that legally speaking Nakheel has to stay part of Dubai World rather than switch to government with baggage?
The other question is, is it able to list the Trade Creditors sukuk covering the 60 per cent balance outstanding to start the 10 per cent earning process with likely more cases to be brought before the Dubai World Tribunal. Under DIFC rules remember?
It is quite interesting to read that Greenfield failed to see a mosque which would be a considerably large structure in the land that they bought!!
I am no party to these discussions (if I were I would more surely be under an NDA), but in principle you could set up all the liabilities on a different vehicle and move the still performing assets to the Government company. That would be the target of litigation. Certainly he new owner would need to provide some assurance that the liabilities in the "bad Nakheel" would be covered.
At least you could have a management team focused on running the still valuable bits and not on cleaning up the mess; it would also prevent a distressed sale of valuable assets.
I am not really sure if that was your question. The second one is a little choppy, i think it was either siesta time for you or the AB controller.
Between 2005 (my first contact) and 2008 the whole "due diligence" concept in the region was ludicrous. You got lot of heat if you dare to signal any hole on a business plan or point to obvious risks factors. to the point of my client trying to stop one guy in my team from asking questions because the target "may get upset and not sell to us"
My experience is that today investors are being much more careful, at least the ones I work with, and are more keen on hearing about risks and downsides.
I am sure eventually we will go back to the "ignore all risks" but is going to take some time methinks.
Dear Telcoguy as such a worthy and prominent member of the AB contributing commentators community, I thought you deserved a top level reply.
Indeed I take your point about a transfer of performing assets to a government owned vehicle Nakheel NewCo while the toxic debt, potential payments arising from outstanding court cases and other liabilities are held in another company. The only question I have on that score is that aren't the performing assets also to be used as collateral for the Trade Creditors 60% of oustanding payment sukuk. If they then come under the government company umbrella, does that not imply that the sukuk is effectively government backed, even though it has been categorically stated that the bond is not government backed? Just a thought you understand.
I agree that the point about freedom to list the bond, with oustanding litigation under international law at DIFC is moderately controversial but begs the question as bourse and tribunal fall under the same aegis?
I appreciate your reply. Obviously I can not answer your questions about the sukuk, there has been already quite a bit of confusion about what was government backed and not. You may need to litigate to find out. And I can not either answer about the legal situation with regards to which of the two New Nakheel (the "bad" and the "good") would remain under DIFC. Maybe both, maybe none...
But this could also just be an attempt to free management of the "good" Nakheel from the constraints of the "bad" (we both agree that these good assets should be replaced with some additional warranty) Properly done this could signal a fresh start for Nakheel, and I seriously do not see other alternative short of shutting down. Could you run a company under the pressure of litigation and the threat of having your assets seized (as collateral) for a bond that buys you no new opportunity?
As usual in Dubai all will depend on details, and precedents are not so good but it could also help to recover trust.
Its interesting the lawyer uses the word"amicably"??? Greenfield are a Russian company that for the past 2 years have done everything but try and settle any matters amicably. They have imprisoned the real estate brokers that represented them in this deal by banking security cheques that should have been returned after they took power of attorney on the land. Greenfield have done this in a desperate bid to try and effectively get a refund.....Nakheel is NOT IKEA and its NOT OK to change your mind......