Dubai’s Nakheel to Pay Back Its Bank Loans Four Years Early

Nakheel PJSC, the property developer that drove Dubai to the brink of default in 2009, will pay back all of its bank loans four years early and focus on building hospitality projects, its chairman said today.

The company will repay 5.54 billion dirhams ($1.5 billion) in August before that would have been due in March 2018, Ali Rashed Lootah said at a conference in Dubai today. The funds being used to repay the debt are coming from Nakheel’s income and not from a government support fund, Lootah said.

Dubai World, Nakheel’s former owner, roiled global markets in November 2009 by seeking a “standstill” from creditors to give it time to restructure about $25 billion of debt, three weeks before the maturity of Nakheel’s $3.52 billion Islamic bond. Abu Dhabi extended a $10 billion bailout to help Dubai World meet its obligations before Nakheel reached a restructuring agreement with creditors in March 2011.

Nakheel wrote off $21 billion in assets after Dubai’s property market crashed in 2008. It got an $8.6 billion bailout from Dubai’s government to help avoid default and was forced to halt projects including the man-made islands of Palm Deira and Palm Jebel Ali. The developer restructured by reaching agreements with around 80 banks and dozens of suppliers.

Now, the builder of palm-shaped islands off Dubai’s coast, is planning to develop income-producing assets, including 2,900 hotel rooms in the next three years and 7.9 million square feet of retail and leasing space, Chief Executive Officer Sanjay Manchanda said today.

‘New Opportunities’

Paying off the debts “opens up a number of opportunities and funding avenues that we previously couldn’t tap because of the covenants in our banking agreements,” Manchanda said. “The deleveraging of the company will go a long way in supporting what we see as strategic growth area for Nakheel, the hospitality sector.”

Banks including Emirates NBD PJSC, Dubai Islamic Bank and National Bank of Abu Dhabi were among Nakheel’s biggest creditors. The early repayment will save the company around 400 million dirhams in annual interest, Lootah said. Nakheel has a 10 percent Islamic bond due in August 2016, which was part of the restructuring deal with trade creditors.

Nakheel’s chairman declined to specify whether the company plans to seek loans or issue bonds to fund projects. He said the company is considering selling shares in an initial public offering and will discuss a plan with holders soon.

Dubai’s benchmark DFM General Index main climbed the most in more than nine months today, ending a three-day slump that pushed the gauge into a bear market.

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