Jafza wins creditor approval for early repayment of Dh7.5 billion sukuk

Jebel Ali Free Zone Authority moves a step closer to resolving a $2 billion debt dilemma after its creditors consent to an early repayment of sukuk, coming due later this year.

Jebel Ali Free Zone Authority has received approval from its creditors to repay Dh7.5 billion (US$2.04bn) of sukuk ahead of schedule.

The free zone operator, which is known as Jafza and is controlled by Dubai World, had been due to repay the Islamic bonds in November.

The agreement moves the company a step closer to resolving a debt dilemma that some traders had feared would roil local markets this year if it did not proceed smoothly.

Jafza received approval from investors holding Dh6.6bn of sukuk, representing about 89 per cent of the outstanding debt.

Jafza was slowly approaching a resolution to the uncertainty of how it would repay the debt, said Franck Nowak, an analyst at Moody's Investors Service, which rates the outlook for the sukuk as "developing".

"It's all pointing in the direction of an early refinancing of the sukuk," he said.

"We would obviously see that as a positive - but that would be depending on the final terms of the debt structure."

The company is in talks with lenders to raise new capital through sukuk, which it hopes to issue by the end of September, Jafza said in its latest financial statements.

Citigroup, Dubai Islamic Bank and Standard Chartered advised on the deal.

The yield on the notes, which pay a coupon of 3.01 per cent, has fallen by 5.845 percentage points since the start of the year, to 5.112 per cent, as investors gained confidence that the sukuk would be repaid. Bond yields move in the opposite direction from prices.

Jafza generated a profit of Dh241.6m last year, an increase of 72.9 per cent compared with 2010.

The company's sukuk maturity in November this year had been viewed as among the more challenging debt refinancings to be faced by Dubai's government-related holding companies, collectively known as Dubai Inc.

Bond markets breathed a collective sigh of relief after Dubai Holding Commercial Operations Group repaid $500m of bonds in January - averting fresh concerns about Dubai Inc's creditworthiness.

Dubai is also in the process of negotiating the refinancing of a $1.25bn sukuk repayment owed by DIFC Investments, the investment arm of Dubai's financial free zone.

Dubai stunned world markets in 2009 when Dubai World, one of the emirate's three biggest government-related holding companies, began efforts to restructure about $25bn of debt.

The improved outlook for UAE corporate credit comes as bond markets across the Middle East recover from difficult conditions last year and companies find it easier to raise funds, said Usman Ahmed, the head of fixed income at Emirates NBD.

"The Mena [Middle East and North Africa] credit markets have had a good run thus far," he said. "It's been a record year as far as new issuances."

However, the outlook for much of the region's corporate credit market remained clouded by turmoil on international markets, Mr Ahmed added.

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