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Nakheel, Dubai World duscuss Repayment of $3.52b Sukuk

DUBAI — Government-run property developer Nakheel PJSC said it is in talks with its parent company Dubai World about its $3.52 billion Islamic bond that matures in December, the company said on Wednesday.

“Nakheel can confirm it is in discussions with its parent regarding the forthcoming December 2009 Sukuk maturity,” Nakheel said in a statement on the Web site of Nasdaq Dubai, where the bond is listed.

Nakheel disclosed no other details. Spokesmen for both Nakheel and Dubai World declined to comment despite repeated efforts by Khaleej Times to contact them.

International debt markets are watching closely as the December 14 repayment date for this debt approaches. The scheduled repayment has become a yardstick for Dubai’s ability to pay back the many loans it has piled up amid the global credit crisis.

Nakheel, one of the biggest losers in Dubai’s stricken property market, made an early payment of a Dh4.4 billion debt in October, boosting confidence that it would be able to settle its later obligations as well.

“Nakheel is trying to convince markets that there is no problem with repaying. It is sending a message that it will honor its commitment to pay, and that it will pay in full,” said Vyas Jayabhanu, head of investments at Al Dhafra Financial Brokerage.

Dubai World, which is also struggling to cope with its debts, has guaranteed Nakheel’s Islamic bond. Nakheel said in a financial exchange filing in August that Dubai World had owed $59 billion in debts at the end of 2008. It said that Dubai World’s consolidated liabilities at the end of December amounted to Dh217.8 billion, or about $59.1 billion, compared to total assets at that time of Dh365.8 billion.

In June, credit ratings agency Standard & Poor’s downgraded Nakheel, citing uncertainty over the Dubai government’s willingness and ability to bail out distressed government-run companies.

But with all eyes on Nakheel, even the possibility of a restructuring of debt is out of the question, argued Omar Douk, vice-president at Shuaa Capital, the UAE’s biggest investment bank.

“In my opinion, Nakheel will pay out the 2009 Sukuk on time, in full. I don’t think there is any talk of either refinancing or defaulting,” he said.

Al Dhafra’s Jayabhanu said he believes that the Dubai government will do its utmost to ensure that Nakheel does not default.

“The stakes are too high,” Jayabhanu said. “A default or a restructuring is something that Dubai cannot afford (because) it will compromise the country’s sovereign (debt) ratings.”

rocel@khaleejtimes.com