Shares up on sukuk outlook

Markets rise amid speculation that Nakheel, a developer owned by Dubai World, would hammer out a deal with creditors to pay off a $3.52bn Islamic bond.

The Dubai Financial Market index gained 3.3 per cent, building on a 7 per cent advance last Thursday.

Markets rose Sunday amid speculation that Nakheel, a developer owned by Dubai World, would hammer out a deal with creditors to pay off a $3.52bn Islamic bond that comes due Monday. The Dubai Financial Market index gained 3.3 per cent, building on a 7 per cent advance last Thursday. The Abu Dhabi Securities Exchange index climbed 4.5 per cent on the back of strong performance from the emirate's three largest banks, First Gulf Bank, National Bank of Abu Dhabi and Abu Dhabi Commercial Bank, which rose more than 9 per cent each.

"There is talk that a deal, which is acceptable to all parties, could be reached," said Mohammed Yasin, the chief executive of Shuaa Securities. "The deal could include a payment to [Nakheel sukuk] holders as high as 70 per cent, while the other 30 per cent could be capitalised or refinanced." Investors were also cheered by news last week that Emaar, the Middle East's largest developer, was calling off a merger with two struggling property firms in Dubai. Unburdened of Sama Dubai and Tatweer, Emaar shares rose 6.8 per cent, adding to a 14.8 per cent jump last Thursday.

Dubai World's announcement on November 25 that it would seek to delay repayments on $26bn in debt has been affecting markets ever since. Stocks in Dubai had declined 26.7 per cent between the announcement and last Wednesday. They have since risen 10.6 per cent. The market's upswing has been pegged to growing optimism about Dubai World's efforts to handle its debt, including the Nakheel sukuk. The Dubai Financial Support Fund, which is overseeing the restructuring at Dubai World, has so far been silent about plans to repay the sukuk, the largest chunk of debt to come due since the standstill announcement. That has fed speculation that Nakheel might repay the bond during a two-week grace period that starts today or that the Abu Dhabi Government might step in to rescue the ailing developer.

Investors in the sukuk said they had not been contacted by the company about a repayment or a restructuring, leading them to believe that no such deal was forthcoming. "There has been no communication on a proposal for restructuring," said one Dubai-based banker whose firm has invested in Nakheel debt. If Nakheel wanted to repay the sukuk, it would have had to transfer the cash about four days ago, a banker familiar with such transactions said. The money would first go to the sukuk's trustee, Deutsche Bank, which would distribute it to investors through Euroclear, a securities clearing firm in Brussels.

Officials at Deutsche Bank and Euroclear could not be reached for comment. Investors in local markets, meanwhile, had mixed views about Dubai World's debt problems. "I am sure that everything will be OK," said Abu Hani, a day trader, on the floor of the Dubai Financial Market. "Whether they will repay the sukuk is really a political question. It is up to the Dubai Government to take a stand. "We live on hope. I am sure they will repay. Sheikh Khalifa [President of the UAE] has stated support. We live in one country, after all."

Mustafa Khajah, another investor, said Nakheel should not repay the sukuk. "Dubai should show that it is strong, that no one can pressure it," he said. "Why does the whole world talk about Dubai? The world should give them time." But the head of a brokerage in Dubai said he thought the market's recovery meant a deal to resolve Nakheel's debt was probably in the works. "I think there is some kind of good news," he said. "I think they will repay. Some people know this and that is why the market is up."

Investors in Abu Dhabi said they were hoping for good returns on stocks as the year draws to a close. "It's almost the end of the year and as we enter the fourth quarter [earnings season], companies will be distributing their profit," said Shaker Eissa Ali, a retired trader. "I can expect stocks to increase in price. This is a strategic time for us." * with Dow Jones * additional reporting by Hadeel al Sayegh

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