Dubai pays $980m Nakheel sukuk, $24.8bn debt rescheduling late
Posted on 13 May 2010 with no comments from readers
The $980 million Nakheel sukuk or Islamic bond that fell due today has been paid in full by the Dubai Government, according to the newswire Zawya Dow Jones.
But Dubai World has yet to sign off a $24.8 billion debt rescheduling with its creditors that was originally scheduled for the end of April. The large foreign banks have publicly indicated their satisfaction with the deal on the table while it is understood that local banks are pressing for better terms.
Taking time
How long this wrangling will continue is not clear, although the Dubai Government negotiations leader Sheikh Ahmed bin Saeed Al Maktoum has indicated that a couple of weeks more are required to finalize the deal.
However, the developer of the palm island trilogy and The World island archipelago has already begun to sign agreements with its trade creditors under the terms suggested in the pending debt rescheduling program. Trade creditors are being offered a 40 per cent cash payment and 60 per cent in the form of a tradeable security paying a 10 per cent coupon.
Under the terms of the program Nakheel will be moved under the direct control of the Dubai Government and out of the Dubai World conglomerate, while Dubai will inject $9.5 billion into Nakheel to reduce its debts.
News that the rescheduling is completed is expected to spark something of a relief rally on the Dubai Financial Market, although this will hardly come as a surprise.
Debt crisis over
This will bring to an end the celebrated Dubai debt crisis of last December which ended as suddenly as it started with Abu Dhabi stepping into provide low-cost bonds to refinance Dubai and avoid defaulting on an earlier sukuk.
The damage to Dubai’s reputation as a business and financial centre is hard to assess. There was no actual default on any bond payments and no bank principle will be lost in the proposed rescheduling.
But the aura of Dubai being a place where the normal rules do not apply to commercial life has ended and a more sober and back-to-basics reality taken its place. Indeed, Dubai still has good credit but it costs more, and this is a constraint on business growth.
