Indebted developer to issue first tranche of $1.3bn bond to creditors at profit rate of 10%
Dubai's Nakheel will issue the first tranche of an AED4.8bn ($1.31bn)
Islamic bond to trade creditors on Thursday, its chairman said, as the property
firm completes a complex debt restructuring underway since 2009.
Ali Rashid Lootah said the developer, which held separate
debt talks with banks and trade creditors, will issue an AED3.8bn ($1.03bn)
first tranche of the sukuk at a profit rate of 10 percent.
Nakheel is restructuring a total of $16.06bn in debt,
including $8.71bn of government debt which is to be converted into equity. The
remaining amount is owed to trade creditors and banks.
"It's been a tough 18 months ... we have managed to
complete a complex restructuring," Lootah said at a press conference.
"The completion of the final restructuring ends a
chapter for Nakheel and we look forward to delivering our commitments towards
our trade creditors and investors."
The company offered trade creditors repayment of 40 percent
cash and the remaining 60 percent in the form of an Islamic bond, or sukuk as
part of its restructuring program.
The Islamic bond will not be backed by the government but by
Nakheel's assets, the chairman said, adding no assets had yet been sold as part
of the restructuring. The second tranche of the bond, the timeframe of which
was not disclosed, will be used to meet trade creditor claims, he said.
Bank creditors will be offered an interest rate of 4 percent
over the London Interbank Offered Rate (Libor) and repayment after five years,
Lootah said. The company is restructuring $2.2bn of bank debt.
The sukuk is already being offered at a 20 percent discount
in the secondary market by some trade creditors, signalling their preference to
cash out rather than wait for maturity.
It will trade on the Nasdaq Dubai bourse, Lootah said.
Nakheel, which overstretched itself building islands in the
shape of palms and other ambitious projects, was part of state-owned Dubai
World which recently completed a $25bn restructuring with banks.
The developer's ownership shifted to the government last
month as a concluding step of the parent firm's complex restructuring process.
Nakheel's coordinating committee is made up of National Bank
of Abu Dhabi, Dubai Islamic Bank and Barclays Capital.
As so many of Nakheel's trade creditors are likely to want to resell the bond on the secondary market almost immediately for the sake of cash flow, how come, despite the fact that Nakheel will be owned by the Dubai government in a short while, the bond is not backed by the Dubai Government?
Surely a bond backed by Nakheel assets, which in keeping with most real estate continue to fall in value, will not have the same value in the eyes of companies prepared to buy up this debt on the secondary market? Also at what stage are these assets valued as back up to the bond, at least 2011 values with an override for further depreciation over 5 years one would hope?
When resale of the bond first cropped up as an idea, companies were suggesting a resale price of face value less 15%. In the absence of government backing, that discount could potentially become anything between 21 and 29%.