At the signing ceremony for Nakheel’s first major new construction contract award since its debt restructuring, the real estate developer’s chairman was asked if he had considered changing the company’s name to make a break from the financial problems of the past. Ali Rashid Lootah was quick to respond: “Absolutely not, why would we?”

Lootah knows the value of a brand. Although Nakheel’s reputation was tarnished by the cancelling of projects and the subsequent debt problems that followed Dubai’s property slump in 2008, the company is still one of the region’s best-known real estate developers. Since the opening of the first properties on the Palm Jumeirah in 2007, Nakheel’s island has become one of Dubai’s most popular destinations, with a range of hotels including the $1.5bn Atlantis hotel and waterpark.

Nakheel’s new projects

The signing ceremony on 11 April proved there is still widespread interest in Nakheel and its projects. The AED194m ($53m) contract awarded to local contractor Dubai Civil Engineering (DCE) to build the Palma Residences received a disproportionate amount of press coverage, as journalists quizzed Lootah on sukuk issues, property prices, past projects and upcoming schemes. 

With billions of dirhams of unpaid bills in recent years, it is not surprising that much of the media attention the company receives is negative. That is starting to change as the developer launches new projects in Dubai, such as the Palma Residences, the Points, new villas and a mall on the Palm Jumeirah, and an expansion to the Dragon Mart shopping mall.

Contractors’ attitudes are also changing. Most Dubai-based firms are desperate for new work and are prepared to write off the bad experiences of the past. “We would be happy to work for Nakheel again,” says a major local contractor that was working on several contracts for the developer that were stopped or downsized in 2009. “We have agreed on a payment plan for the work we had done and we are now receiving prompt payments.”

Prompt payment is paramount for Lootah as Nakheel tries to restore confidence in its future projects and operations. “My first instruction at Nakheel was we must pay and we must pay on time,” he says.

With projects such as Palma Residences, payment should not be a problem. At launch, Nakheel sold 30 per cent of the 104 units on offer, providing much-needed cash to get the project started. “We have a stringent payment plan,” says Lootah. “We are taking a 40 per cent down payment, so the project is self-funding.”

Nakheel’s resurgence coincides with an improved outlook for Dubai’s economy, as the government and its related companies start to invest in new infrastructure projects that will support future growth. This year, port operator DP World has awarded Geneva-registered Archirodon Construction an estimated AED150m contract to build the Terminal 2 expansion at Jebel Ali port and has issued tender documents for a much larger deal covering the construction of Terminal 3.

At the airport, the Department of Civil Aviation has selected the local Alec for the estimated $850m contract to build concourse 4, and has awarded the local Arabtec Construction a $153m contract to expand and refurbish the Terminal 2 building, which serves budget airlines.

As work on these infrastructure projects starts, confidence in real estate is slowly strengthening. “The market reaction [to Palma Residences] has been serious. [It] is a sign of the confidence in Dubai and Nakheel,” says Lootah. “This project is proof the recovery is on its way.”

That confidence is driving land and property prices back up to their pre-2008 crash levels. “We are now selling plots on the Palm for more than pre-crisis levels,” says Lootah.

Debt burden

As Nakheel looks forward to a brighter future, it will not be able to completely forget about the past. In mid-2011, the company completed its debt restructuring plan. Under this, AED8bn of bank debt will be due to be repaid after five years. The first tranche of a sukuk (Islamic bond), issued to trade creditors to settle unpaid bills, will also be due at about the same time.

Although Lootah says Nakheel is on track financially, it faces a big challenge in a few years’ time paying off, or convincing banks to refinance, all its restructured debt.

In total, Nakheel is sitting on $10.5bn of restructured debt, after receiving $8bn from the Dubai government and writing off $21.4bn from the value of its assets. The government has promised to provide a further $7.3bn to help the firm keep operating if it needs it.

Nakheel must start to make money if it is to meet its new financial obligations, which is why its newly launched projects are so important.

Lootah says the new more streamlined developer is moving in the right direction. “Our cashflow in the first quarter of this year was double when compared with the same quarter as last year,” he says. Nakheel’s focus is firmly on completing its original Palm island. For now, its plans for its other offshore islands remain long term.