Nakheel $3.5bn payment due tomorrow

13 December 2009

Last minute repayment would threaten restructuring talks on a further $22.5bn of debt

Dubai property developer Nakheel is due to repay a $3.5bn sukuk on 14 December, with bankers close to the company saying rumours of a last minute repayment are unlikely as it would create problems with the rest of Dubai World’s creditors.

Rumours have been going around the market that Nakheel could repay the sukuk to avoid a default since its parent company, Dubai World, said it was launching a restructuring of $26bn of debt on 25 November. This includes the $3.5bn Nakheel sukuk.

On the eve of the repayment, rumours have been intensifying. One Dubai-based banker says, “There has been a lot of talk that the bonds could be repaid in order for Dubai to avoid the embarrassment of a default.”

The price of Nakheel’s bonds briefly rallied on 11 December, the last trading day, to hit 53 cents, up from under 50 cents, as investors became more optimistic on the prospects of a repayment.

But a repayment could create more problems than it solves as Nakheel bondholders will benefit ahead of other Dubai World creditors. A banker close to Dubai World says, “The problem of making a repayment on Nakheel now is that it would cause a lot of anger and confusion in the rest of the creditor group of Dubai World.”

Although the Nakheel sukuk is due to be repaid on 14 December, there is a two week grace period before a non-payment becomes a default.

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