Dubai's Nakheel restructuring includes AED 4.8 billion 10% sukuk

By Paul A. Harris

Portland, Ore., Aug. 24 - Dubai's government-owned property conglomerate Nakheel will issue AED 4.8 billion, or about $1.3 billion, of five-year asset-backed sukuk paper as part of its debt restructuring plan, according to a portfolio manager based in the United States.

The paper, which is expected to be issued in stages beginning on Thursday, will provide a 10% rate of return.

The sukuk will not be rated.

Deutsche Bank is the lead arranger for the restructuring.

The sukuk is a critical component of Nakheel's attempt to settle unpaid debt owed to contractors who went unpaid when conditions in Dubai's real estate market deteriorated in 2009, the manager said.

Contractors will receive a combination of notes and cash. Exact details, including the cash and sukuk portions, are expected to be announced soon.

It is anticipated that the contractors will attempt to sell the sukuk paper, a bond-like indenture that conforms to Islamic usury laws.

However, if they flood the market with the sukuk paper in the near term, they will likely suffer significant price depreciation due to illiquid market conditions and the distressed condition of Dubai's debt, the manager said.

Nakheel is also restructuring about $13 billion of bank debt.

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