Dubai property developer Nakheel asked bank creditors to accept repayment of $10.5 billion over five to seven years.


Detailed terms of the multi-billion dollar restructuring, including the rates of interest and repayment schedules for the syndicated and bilateral loans, were presented to bankers who were asked to respond to the proposals by the end of August. Those details were not made public. However, bankers present at the meeting said one rate proposed was 4 per cent more than benchmark rates on new loans, but both stressed that separate rates would apply to separate loans.


The repayment period is between five and seven years.


A Nakheel statement said the terms had unanimous approval by the three-bank coordinating committee, "subject to further internal approvals", and that Nakheel expects the restructuring to be completed over the coming months. Its coordinating committee is made up of Barclays Capital, National Bank of Abu Dhabi and Dubai Islamic Bank.


Nakheel's talks centre on one syndicated loan worth $1.8 billion and an unknown number of bilateral ones.


Dubai World is working at the same time to restructure $23.5 billion of its own debt. Its plan has also won the approval of its core lenders and it will put it before the entire group of banks on 22 July.


Nakheel - which has repaid two Islamic bonds worth $5 billion - is also in separate talks with its trade creditors and has begun making cash payments to them under a plan unveiled by Dubai in May.


The trade creditor plan offers full repayment, with 40 per cent in cash and the rest via an Islamic bond, or sukuk, which has a 10 per cent annual return.


July 14, 2010



Analysis and Forecast: Decreasing Risk


The news that Nakheel has finally presented an offer to restructure its debt is a move in the right direction, though overdue. There still far too many variables to the offer, and it is not yet clear where the money would come from. One thing that is confirmed is that there has been no unconditional support from Abu Dhabi.


Although the news is good in that it indicates that Nakheel will pay its creditors and settle its bills, it sets the scene for Dubai’s future development. It will be almost unimaginable for Dubai to embark on another construction spree and will have to rethink it’s business model. The Dubai authorities have already indicated that they will, moving away from reliance on real estate and construction. However, it is not clear how this may be achieved. With no oil revenues and its construction and real estate sector all but over, Dubai has now reached a point to either accept to be taken over by Abu Dhabi or quickly come up with a new development plan.


Later in July 2010, Dubai World is expected to present it’s proposal to it’s creditors. This will be watched very closely and they way it is received by the creditors will be of huge importance. If the latest Nakheel offer is an indication to what will come with Dubai World, it is a good indication but not one that will be overwhelmingly positive.


The figure below shows an estimate of the outstanding Dubai World debt: