Tamweel Bonds Fail to Gain From Dubai Accord: Islamic Finance

Tamweel Bonds Show Skepticism Over Dubai Deal
Tamweel’s 4.31 percent sukuk due in 2013 are the worst-performing Islamic bonds in the U.A.E. in the past five months after their yield surged 867 basis points, or 8.67 percentage points, since an April 13 low. Photographer: Charles Crowell/Bloomberg

Islamic bonds of Tamweel PJSC, the United Arab Emirates-based mortgage lender, have failed to benefit from the Dubai World debt accord after being the worst performing sukuk in the country in the past five months.

The yield on Tamweel’s 4.31 percent sukuk due in 2013 surged 8.67 percentage points, since an April 13 low. Yields on the debt climbed six basis points to 19.64 percent since Sept. 9, the day before Dubai World unveiled an accord with 99 percent of creditors. Yields on notes from Dubai World’s DP World Ltd. fell 22 basis points in that time.

While the state-owned holding company reached an agreement with creditors to alter the terms on $24.9 billion of debt, government-controlled businesses are still struggling to meet obligations. A government plan to merge Tamweel, which has a $235 million loan due in January, with Amlak Finance PJSC has been in the works for 22 months. Both shares have been suspended since 2008.

“Dubai is not out of the woods yet,” Raj Madha, a Dubai-based bank analyst with Rasmala Investment Bank Ltd. said in a phone interview yesterday. “It’s nice that we cleared the Dubai World hurdle, but there are plenty more hurdles to clear.

Dubai International Capital LLC, an investment arm of Dubai Holding LLC, presented a plan to creditors to sell assets over five years to repay $2.6 billion, two people familiar with the plan said yesterday. Dubai Holding Commercial Operations Group LLC, a real estate and hospitality group owned by Dubai Holding, received a second extension on repayment of a $555 million credit line, the company said in a statement on Sept. 7.

Dubai Borrowing

Dubai borrowed $109.3 billion as it transformed itself into a financial-services and tourism hub, and the International Monetary Fund estimates the emirate has about $15.5 billion of debt due this year. The deepest financial crisis since the 1930s sent Dubai property prices down more than 50 percent from their peak in August 2008 as mortgages dried up, according to estimates from Colliers International.

The extra yield investors demand to hold the Dubai Department of Finance’s dollar sukuk rather than Malaysia’s 3.928 percent Islamic note due June 2015 narrowed 55 basis points to 355 basis points this month, according to prices from Royal Bank of Scotland Group Plc.

Global issuance of Islamic debt dropped 20 percent to $10.7 billion this year, according to data compiled by Bloomberg. Islamic bonds have returned 11 percent in 2010, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index, while debt in developing markets gained 12.7 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index showed.

Yields Fall

The average yield on sukuk by Gulf Cooperation Council borrowers fell 254 basis points to 6.22 percent since the Dubai government sought to restructure debt in November, the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index shows.

The tumble in Tamweel’s 4.31 percent sukuk since April 13 marks the worst performance among the 21 Islamic bonds of U.A.E.-based entities tracked by Bloomberg. Yields on bonds sold by DP World, which is 80 percent owned by Dubai World, fell about 100 basis points during the same period to 6.9 percent.

“Since the standstill announcement, it became obvious that Dubai needed to sort out the Dubai World issue first before they recapitalize Amlak and Tamweel,” Majed Azzam, a real-estate analyst at HC Securities in Dubai, said in a Sept. 15 phone interview. “Real estate and mortgage funding is a secondary issue for the overall economy.”

Property Prices

The government may merge Tamweel and Amlak into a new Islamic bank and provide it with funding, U.A.E. Economy Minister Sultan Bin Saeed al-Mansouri told Dubai Television in October 2009. Amlak and Tamweel’s investors may own a third of the new bank, while the U.A.E. and Dubai governments may share the remaining stake equally, al-Mansouri said in the interview.

A Ministry of Economy official didn’t answer calls made to his cell phone yesterday. Officials at Tamweel and Amlak didn’t respond to e-mails and telephone calls seeking comment.

The two mortgage lenders may open talks with alternative buyers in case their government-backed merger breaks down, a person with knowledge of the discussions said on June 8.


Dubai World Group owns 20.9 percent of Tamweel, according to data compiled by Bloomberg. Amlak is 45 percent-owned by Emaar Properties PJSC, the U.A.E.’s biggest property developer by market value, the data show.

A merger between the companies “will not have a huge impact on the sukuk pricing because the business models of both entities are questionable under the current scenario in the property sector,” Abdul Kadir Hussain, chief executive officer in Dubai at Mashreq Capital DIFC Ltd., which manages $2 billion of mainly Persian Gulf assets, said in an e-mailed response to questions on Sept. 14.

The government is likely to announce a restructuring plan for the two companies in the next quarter, Ghida Obeid, a Dubai-based analyst at Shuaa Capital PSC, the U.A.E.’s largest investment bank, said in a Sept. 8 telephone interview. Dubai Islamic Bank PJSC, the U.A.E.’s biggest Islamic bank and owner of about 21 percent of Tamweel, may boost its stake, the bank told the Dubai bourse June 2.

“The situation has not changed,” Kashif Moosa, senior vice president and head of corporate development at Dubai Islamic Bank, said in a telephone interview yesterday.

“Bondholders are suffering less than shareholders as they are getting coupon payments and there is ample time before the bonds mature,” she said. “Shareholders on the other hand are stuck with shares that are trading at a more or less 40 percent discount to the last close in the grey market.”

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