Palm Island Builder Nakheel Backed Bond With Undersea Land, Chairman Says
Nakheel Chairman Says Islamic Bond Backed by Undersea Plot
Gabriela Maj/Bloomberg
Nakheel built the Palm Jumeirah artificial island off Dubai’s coast, seen here, as well as a chain of islands shaped like a world map that remains largely undeveloped.
Nakheel built the Palm Jumeirah artificial island off Dubai’s coast, seen here, as well as a chain of islands shaped like a world map that remains largely undeveloped. Photographer: Gabriela Maj/Bloomberg
Nakheel PJSC, the builder of man- made islands off Dubai’s coast, said some of the land used as collateral for a $1.31 billion Islamic bond is at the bottom of the Persian Gulf.
“The land has been valued by reputable companies and was accepted by lenders and trade creditors,” Chairman Ali Rashed Lootah said after a press conference today, without saying who evaluated the asset. “What’s the issue?”
The government-owned developer issued 3.8 billion dirhams ($1 billion) of Islamic bonds to its contractors and suppliers last month as part of an 8.5 billion-dirham program. The company will issue another 1 billion dirhams of the bonds, or sukuk, before the end of this year as part of its $16.1 billion restructuring deal with trade creditors, Lootah said today. He confirmed reports that one plot of land backing both parts of the sukuk is seabed.
The underlying assets for the sukuk are plot 502 in the Persian Gulf and plot 513 in the desert, two people familiar with the transaction told Bloomberg News on Sept. 21.
The sukuk pay a profit rate of 10 percent and are being used to pay 60 percent of what’s owed to the trade creditors. The remaining 40 percent is being settled in cash. The securities yielded 21.6 percent today, according to Standard Chartered Plc prices on Bloomberg.
Investors Offload Bonds
“Given Dubai’s land law, the return to the bondholder rests entirely on the health of Nahkeel, so there shouldn’t be much of a shift here beyond the headline shock,” said Emad Mostaque, a London-based Middle East and North Africa strategist at Religare Capital Markets Plc. “Most of the weakness recently has been investors who received the bonds as recompense and are offloading their positions. Few of them particularly care about the underlying asset.”
Nakheel built the Palm Jumeirah artificial island off Dubai’s coast as well as a chain of islands shaped like a world map that remains largely undeveloped. Plans to create two further palm-shaped islands were put on hold after the emirate’s property market collapsed in 2008.
Nakheel expects to report a profit this year, and has no plans to tap the market further after the second bond issue later this year the chairman said. “We see stability in property prices and an increase in villa prices,” he said. “It’s a sign of a good recovery.”
Nakheel had a profit of 58.9 million dirhams in the first half of 2010 compared with a loss of 13.4 billion dirhams a year earlier, according to a bond prospectus issued last month and obtained by Bloomberg News. The company had a loss of 76.6 billion dirhams in 2009 and a profit of 505.3 million dirhams in 2008, according to the document.
To contact the reporters on this story: Stefania Bianchi in Dubai at sbianchi10@bloomberg.net Dana El Baltaji in Dubai at delbaltaji@bloomberg.net
To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net
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