Majority of Dubai World bailout to go into troubled Nakheel property developments

The developer of some of the city’s flashiest show pieces projects such as the The World, a chain of man made islands in the Gulf, also has two bonds outstanding worth $1.73 billion.
 
Nakheel will receive up to $8 billion as part of the $9.5 billion bail out that is funded jointly by the Dubai government and neighbouring Abu Dhabi. It will mean investors receiving credits equal to 100% of their payments so far which can be traded for projects nearing completion at today’s market prices.
 
Investors also have the option of swapping the credit notes for cash without interest after a period of five years. They can also swap the credits for either property or land, after the five year period has elapsed.
 
But Nakheel’s non-government creditors will have to wait up to eight years for repayment. The company said that trade creditors, including contractors and suppliers, will be offered 40% in cash payment and 60% in the form of a publicly tradable security at a commercial rate.
 
Sheikh Ahmad bin Saeed al-Maktoum, chairman of the Dubai Supreme Fiscal Committee, said the proposals would ensure that both Dubai World and property company Nakheel were ‘key contributors to the strong economic future of the Emirate of Dubai’.
 
Analysts said the proposals would be well received by investors. ‘It boosts sentiment because this is a strong commitment,’ said Ayman al-Saheb at Darahem Financial Brokerage.
‘Information is key in the capital markets and now that we have received some information, we definitely expect a good response from investors,’ he added.
 
The deal is good news for the real estate market according to property consultants CB Richard Ellis as it will boost confidence in the long term viability of Dubai as an investment destination.
 
‘There has been some uncertainty about the atmosphere that the Dubai World situation has created. I think this can go a long way to taking that off the agenda as a discussion item. For investors going forward, I think it is good news, said Dubai boss Nicholas Maclean.
 
He added that Nakheel investors were likely to be buoyed by the announcement, depending on when they made their investment. ‘The offer that they can trade effectively the money that they have spent into a Nakheel product for other products, or in due course after five years ask for cash, is interesting. But if I have debt to pay and I can’t get liquidity out of my original investment, that would still be a concern,’ Maclean explained.