Nakheel Eyes More Debt, Forecasts Recovery
2011 profit 1.3 bln dirhams vs 1 bln dirhams a year earlier; Revenues 4.1 billion dirhams; Total liabilities 41 bln dirhams in 2011, from 61 bln in 2010; Real estate picking up - chairman
April 16, 2012 4:13
Dubai’s Nakheel Properties plans to issue more debt in June, the developer said on Monday, after it posted a 30 percent rise in earnings in 2011 and forecast a recovery in the emirate’s real estate market this year.
Chairman Ali Rashid Lootah told reporters that Nakheel would likely issue a third tranche of an Islamic bond, or sukuk, in two months’ time. It aims to issue the tranche to trade creditors in part settlement of claims of 5.3 billion dirhams.
The first two tranches of the bond are worth more than 4 billion dirhams ($1.09 billion), part of a $16 billion debt restructuring. The first tranche was issued last August and the second is due by the end of this month.
Lootah said he expected Nakheel would agree to pay about 15 percent of the amount outstanding after the second tranche, or around 800 million dirhams, in further tranches.
Nakheel, which was at the centre of a debt crisis in Dubai in 2009 when real estate prices crashed, said its 2011 profit was 1.3 billion dirhams ($353.93 million), up from 1 billion dirhams in 2010.
The company overstretched itself with ambitious projects such as man-made palm tree-shaped islands, and was brought under direct government control as part of the restructuring of its parent Dubai World.
Nakheel wrote off up to $21.4 billion of its real estate assets due to the property crisis, a bond prospectus issued by the developer last year showed.
Dubai house prices have fallen more than 60 percent from a 2008 peak, but Lootah said signs of resurgence were visible.
“The market is picking up so there was no need for impairments (in 2011),” said Lootah. “It’s the start of the recovery.”
He pointed to strong demand in the villa segment, adding the company had achieved a 30 percent increase in prices on Dubai’s upmarket Palm Jumeirah area over a one-year period.
“From the first three months of this year, it’s very promising and I think we will achieve a much better result than 2011,” said Lootah, adding unit handovers would top last year’s total of 820, which included land parcels.
Analysts were bullish about the results.
“This is the benefit of restructuring and more profitability means more liquidity, which is good for recommencing projects and meeting obligations,” said Haissam Arabi, chief executive and fund manager at Gulfmena Investments.
“Rising unemployment and increased taxes elsewhere has likely created an influx of Western expats into Dubai, while the Arab Spring has benefited Dubai indirectly because it is a safe haven, both in terms of security and finance,” he added.
Bond investors have given a cautious thumbs-up to the company’s recovery.
The sukuk’s first portion – a five-year bond worth 3.8 billion dirhams and paying a 10 percent profit rate – is now bid at a yield of about 14.4 percent. This is down from more than 21 percent when it was issued.
Nakheel’s revenue was 4.1 billion dirhams in 2011, down slightly from a year earlier, the company said, while total liabilities fell to 41 billion dirhams last year from 61 billion dirhams in 2010.
By Matt Smith (Editing by Sitaraman Shankar)