UAE Nakheel ’10 Bond Prices Rule Out Full Repayment

Troubled Dubai World unit Nakheel’s 2010 bond prices indicate that investors have ruled out full repayment, with a deep discount or radical restructuring the most likely options, analysts said. Dubai surprised global markets with the depth of its debt problems in November, then again a month later when it paid in full US$4.1 billion of Nakheel’s debt. This time around, however, investors do not expect any pleasant surprises.  “The market is expecting a restructuring from Nakheel. They are not really expecting a 100% redemption,” said Mohieddine Kronfol, managing director at Algebra Capital in Dubai.

The property developer, whose holding company Dubai World is seeking to restructure US$22 billion of debt, has a US$980 million Islamic bond maturing in May 13, 2010. In February, a source said that all options were open for the May Nakheel bond, including offering new paper for existing debt or, if needed, administration. The bonds traded on Tuesday at 55 cents to the dollar, according to prices available from trading platform Deutsche Bank Autobahn. On that basis, they would yield more than 700% if they were fully repaid.

“A lot of the creditors must be hoping that a full repayment, like in 2009, would be made, but the chances of that are low,” said Andre Andrijanovs, corporate analyst at London-based frontier market specialist Exotix. Andrijanovs said that unlike Nakheel’s 2009 bond, the one maturing in May does not carry a guarantee from its parent Dubai World and hence lenders have no recourse to Dubai World assets. Analysts said Nakheel’s May bond might see some interest from distressed buyout firms and hedge funds who expect to benefit from the cheap prices, but volumes on the bond remain low. - The Peninsula