Dubai’s Nakheel is considering refinancing its AED8bn ($2.2bn) of bank debt, as sentiment towards the emirate improves along with the performance of the real estate developer, which only narrowly avoided a default in 2009.
Company chairman Ali Rashid Lootah says Nakheel has been approached by both an international and a local bank interested in refinancing the debt at better terms. “The market is open and we can see slightly better available,” he says.
The firm’s current bank debt is split between a roughly AED7bn five-year loan maturing in 2015, and a AED1bn seven-year loan maturing in 2017. Both were put in place in 2010 as part of the firm’s debt restructuring. Nakheel says the loans were put in place “on commercial terms” at the time. That is thought to be 400 basis points above the London interbank offered rate (Libor), but since then sentiment towards Dubai has improved substantially. A recent $1.25bn sovereign sukuk (Islamic bond) was well received by investors. The cost of insuring against a government default, measured by the credit default swap (CDS) rate, has fallen dramatically from more than 400 basis points in early January 2011 to about 215 basis points on 21 January 2013.
Nakheel’s performance has also improved. The company said that, in 2012, it made a profit of AED2bn, 57 per cent up on the previous year. Revenues were 91 per cent higher at AED7.8bn. Lootah said demand for Nakheel properties was “more than excellent” and that most customers were cash buyers, so would be relatively unaffected by a planned cap on how much of a property’s value can be borrowed. Sale prices of Nakheel properties are “back to pre-crisis” levels.
Most trade creditors have also reached a settlement with the company, with AED4.2bn of sukuk issued, along with AED10bn of cash payments. A further sukuk issue is expected in mid-2013 as other trade creditors reach agreements with Nakheel on how much they are owed.