Major UAE-based developer Nakheel’s recent profit growth announcement of 57% is said to be an indicator of Dubai’s recovering real estate sector; after the emirate was hit with a property slump in 2009 resulting in a 65% crash in property prices and a slowdown in mortgage lending amongst banks.
The company, which is the real estate arm of government-owned Dubai World, hovered on the brink of default in 2011 but was swiftly propped up by the Dubai government’s support fund which injected AED26.8 billion (US$7.29 billion) in equity. The US$750 million Sukuk, which was due to mature in January 2011, underwent a restructuring which resulted in its trade creditors receiving 40% of the outstanding debt in cash and 60% in Sukuk. By the end of 2010 Nakheel had settled AED2.5 billion (US$680.64 million) out of the AED4 billion (US$1.08 billion) in outstanding debt to its trade creditors, while parent company Dubai World had secured approval from creditors to change the terms on its outstanding US$24.9 billion debt.
Allaying concerns
With encouraging growth in the Dubai property market, illustrated by a 30% increase in luxury home property prices and a 16% advance in prices for mid-range apartments, Nakheel is hopeful this year of a repeat performance of 2012, when the company charted a 91% hike in revenue to AED7.8 billion (US$2.12 billion). Although there has been talk of another potential default on the horizon, for the developer’s Sukuk issuance maturing in 2016, the company’s chairman Ali Rashid Lootah has been quick to state his confidence in the company’s ability to repay its debts. According to Ali, Nakheel’s total debt currently stands at AED12.2 billion (US$3.32 billion); including AED8 billion (US$2.17 billion) in bank debt and AED4.2 billion (US$1.14 billion) in Sukuk. In addition, any point, the Dubai Financial Support Fund will be able to provide up to AED15.2 billion (US$4.13 billion) in cash to the developer.
In August last year, the company was also faced with legal problems when an investor, Shokat Mohammed Dalal approached the Dubai World Tribunal for financial compensations totaling to AED57 million (US$15.51 million) which he had invested to reserve three islands being developed by Nakheel. However, when the developments did not materialize, Nakheel was ordered by the court to repay the principal amount invested. Judge Sir John Chadwick, who presided over the case, commented: “In the tribunal’s view, it was plain that The World had never intended to commit unconditionally to the sale and purchase of the three island plots.”
Up in the air
Sentiments are mixed in terms of Nakheel’s performance moving forward, but many are hoping that the developer will keep its head above the water in terms of its debt commitments, especially as bond spreads in the UAE tighten. A market source commented: “The problem with Nakheel is debt, and not liquidity. And the figures look impressive because they are coming from a very low base.”
With new leadership in place following the appointment of Sanjay Manchanda as CEO in October 2012, along with decreasing overheads as a result of cost control measures, and positive movement in the rental and housing market, both investors Nakheel as well as market observers are hopeful that the company will continue to grow from strength to strength. — NH