By Joanne Bladd
Indebted developer to issue sukuk to trade creditors by close of second quarter
Nakheel will be carved out of parent company Dubai World and
become a government-owned entity by June, when its efforts to restructure $10.8bn
in debt will be complete.
"Nakheel separation has not occurred as yet, but will
happen once the restructuring is finalised which is due to be completed by
June," a company spokesperson told Emirates
The indebted developer was at the heart of the debt problems
suffered by its parent company Dubai World, which roiled global markets in
November 2009 when it asked for a standstill on around $25bn in loans.
Nakheel’s inability to meet its obligations, in the wake of
a property collapse and the global credit crunch, left it with billions of
dirhams in unpaid bills to contractors and suppliers.
In March, Nakheel said it had paid AED4.6bn ($1.25bn) in
overdue payments to trade creditors.
The developer plans to issue around AED5bn in Islamic bonds
by the end of the second quarter to contractors and trade creditors.
“The sukuk will be concluded by the end of
the second quarter of 2011,” a spokesperson said.
More than 90 percent of trade creditors have agreed to a
plan that would see Nakheel pay off its bills through a 40 percent cash payoff
with the remaining 60 percent issued in the form of sukuk shares with an annual
return of eight percent.
Lawyers in Dubai warned in March that investors and trade
creditors may find themselves unable to pursue disputes against Nakheel in the
Dubai World tribunal after the split from Dubai World.
Those with outstanding disputes may find themselves in legal
limbo if the tribunal – which was set up to hear disputes linked to Dubai World
– can no longer rule on cases related to Nakheel.
The developer behind Dubai’s iconic palm-shaped island said
in April it had stopped selling real estate units in Dubai in order to focus on
offering credit swap options to existing investors.
Nakheel offered credit swaps in the wake of Dubai’s real
estate crash, to enable buyers to transfer cash from unfinished or halted
developments to completed real estate.
The first thing that Nakheel needs to do as soon as it becomes a Government of Dubai entity is to pay its investors (in cancelled projects) by way of a Sukuk.
This will bring immense credibilty back to Nakheel and trust amongst international investors that the Government of Dubai can be relied upon to honour it's debt and obligations.
Once they do that, investments and funds will flow in and Nakheel can be gradually revived over the next 5 years to recoup it's losses.
To be honest the number of court cases reported as being brought against Nakheel in the last 4 weeks has risen so one assumes that June maybe a bumper month for cases brought to the Dubai World Tribunal.
There is another factor to consider, a number of unhappy investors have brought cases against 3rd party developers, who have used Nakheel's failure to enable building certificates by dispute or infrastructure that allow handover of properties to claim 'Force Majeure'. Will Nakheel's transfer to government ownership mean that courts will uphold a 3rd party developer's resort to Force Majeure or not? Particularly pertinent to Jumeirah Golf Estates and Palm Jumeirah Golden Mile.
Also I thought that only repayments to bank and trade creditors would involve a sukuk not refunds to property investors? Off-plan buyers with no chance of a property only get a direct swap to units or a credit note toward a purchase, at completed Nakheel developments, will the government continue this policy?
Once this happens the Government will fold Nakheel and everyone with outstanding debts will lose their money. Why else would they do this if this is not their intention.
What happens when later on Nakheel defaults on the newly issued Sukuk?
Dubai World is owned by the Government of Dubai so what difference this would make ?? Can someone asnwer me?
What about unpaid fees to NAKHEEL if one is a property owner. There has been a dispute among owners and Nakheel with their unaudited figures for the last 3 years.. Can the receiver take receipt of the property if an outstanding amount is owed to them?? There are 1000's of owners in that position??