Nakheel's 4 Percentage-Point Margin on Loans a `Good Rate,' Analysts Say
'The Palm Jumeirah' development, also known as Palm Island, built by property developers Nakheel PJSC in Dubai. Source: Nakheel via Bloomberg
Nakheel PJSC’s plans to offer lenders interest of 4 percentage points more than benchmark rates as part of the Dubai-owned developer’s $10.5 billion debt restructuring provides a good return to banks, analysts said.
Nakheel, the state-owned builder of a palm tree-shaped island development off Dubai’s coast, will offer the new interest rate on its loans in dollars and dirhams at a meeting today, two bankers with knowledge of the plan, said yesterday. In return, lenders would agree to extend the life of the loans by five years, said the people, declining to be identified because the matter is private.
“This is a pretty good rate and a very decent return from the banks’ perspective,” Janany Vamadeva, an analyst at HC Securities in Dubai, said in a phone interview. “And 400 basis points compares favorably with the Dubai World proposal.”
Nakheel said March 25 that its secured bank creditors will receive 100 percent of their principal and accrued interest under an agreement to extend the loan maturities. The developer has one dollar loan outstanding, a $1.85 billion facility that was signed in August 2007 and is due to expire in 2012, according to data compiled by Bloomberg.
A spokesman for Nakheel’s parent, Dubai World, which is also seeking to restructure debt, declined to comment. A spokesman for Dubai’s Department of Finance, which pledged $8 billion to help the Nakheel restructuring, also declined to comment.
Not Final
The proposed terms aren’t final, according to one of the people. The loans make up part of the overall liabilities that Nakheel is seeking to reorganize, which also include outstanding payments to suppliers and contractors. The spreads on the new loans will be wider than the Emirates interbank offered rate or the London interbank offered rate, the bankers said.
The proposals “are overall good although not as good as what Nakheel’s trade creditors were offered,” Andre Andrijanovs, a London-based emerging-markets credit analyst at bond-trading firm Exotix Ltd., said in an e-mail. “I would not see an immediate impact on prices as there are a few more restructuring stories in the pipeline that could keep the market edgy.”
Nakheel and Dubai World, one of the emirate’s three main state-owned holding companies, are seeking to renegotiate terms on their debt after the deepest financial crisis since the 1930s roiled the emirate’s real-estate market and left companies unable to raise new funding. Property prices have fallen more than 50 percent in the city state as banks cut mortgage lending.
Dubai World
Dubai World said on May 20 it had reached an agreement with its seven biggest lenders, among them Royal Bank of Scotland Group Plc and HSBC Holdings Plc, and the Dubai government on restructuring $23.5 billion of liabilities. Dubai World offered creditors 1 percent interest on loans and additional interest on maturity ranging from 1 percent to as much as 2.5 percent.
Nakheel suppliers and contractors are being paid 100 percent of their claims, 40 percent through a cash payment and 60 percent in the form of a publicly traded Islamic bond, or sukuk, paying a 10 percent annual return, the company has said.
Nakheel said on June 30 it had begun settling bills from its biggest trade creditors, involving a payout of 4 billion dirhams ($1.09 billion). More than 60 percent of its trade creditors agreed to new payment terms, it said.
United Arab Emirates’ banks may need to set aside 10 percent to 20 percent of their loans to Dubai World to cover losses after it announced a $23.5 billion debt restructuring, Moody’s Investors Service said June 29.
To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net
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