Nakheel creditors get own voice

The developer is co-ordinating a committee similar to the Dubai World panel.

The Dubai Government has formed a committee of Nakheel creditors to deal directly with the developer as part of the Dubai World debt restructuring. The move comes as a Dh3.6 billion (US$980 million) sukuk from the Dubai World property unit is due to be repaid in days. Dubai World owes financial and trade creditors an overall $24.8bn. Of that, it has to pay back $14.2bn to its own creditors, with the remaining debt associated with Nakheel, the developer of the Palm islands.

"A separate Nakheel co-ordinating committee has been appointed and will shortly be sending a communication to all Nakheel financial creditors," the law firm Allen and Overy told creditors in a letter written on behalf of the Dubai Government. The Department of Finance could not be reached, while the Government of Dubai declined to comment. The committee representing Nakheel creditors will negotiate independently from the main co-ordinating committee of Dubai World creditors, on which seven key lenders to the conglomerate, including Emirates NBD and Standard Chartered, are negotiating on behalf of more than 90 lenders.

In addition, the Government has assured Nakheel creditors that it will continue to pay interest until the end of this month. "Nakheel indicated in a meeting with the Nakheel [co-ordinating committee] that rental/interest payable to Nakheel financial creditors will be paid when due in respect of the period to May 31." But it remains unclear whether Dubai World will continue to service its own loans after May 1. So far, creditors have not agreed to Dubai World's restructuring proposal, which was tabled on March 25.

The Government's initial restructuring proposal offered to pay Nakheel creditors interest at commercial rates, while Dubai World's creditors would be offered below-market interest rates on rolled-over loans. The different terms for the two sets of creditors reflect differences in their level of security and legal positions, according to a source close to the Dubai Government. "Dubai World lenders lent to the Dubai World Holding Company. There is no recourse to any assets under the Nakheel umbrella," the source said. "They have no recourse on assets. They hold structurally subordinated debt."

"By contrast, a lot of lenders to Nakheel have mortgages as a security. Their treatment is going to be different." Dubai World creditors are expected to be paid 1 per cent interest when rolling over their maturities by five years, while they would receive an additional 1 per cent payment in kind if they extended their loans by eight years. But Dubai World and Nakheel creditors are not the only ones to be treated differently.

Some bankers have said Dubai World's treatment of bank creditors, who are owed $14.2bn, is unfair in relation to the deals offered to trade creditors and investors. Large contractors and suppliers of Nakheel are to receive 40 per cent of unpaid bills in cash. The rest will be repaid in a five-year Islamic bond paying 10 per cent interest. Separately, Nakheel may repay a Dh3.6 billion ($980 million) sukuk, or Islamic bond, due next Thursday even if its parent, Dubai World, does not reach an accord with creditors, a Government spokeswoman said last week.

"Nakheel has told the Nakheel [co-ordinating committee] that the proposals to restructure the 2005 Ijara [house financing instruments] may be communicated to the syndicate members," according to the letter sent by the Government. In December, the Abu Dhabi Government lent Dubai $5bn to enable Dubai World to pay $4.1bn to settle a Nakheel sukuk that was due that month. The remaining money was slated for paying interest and working capital through April 30.

But this was under the condition that Dubai World reached a standstill agreement with its creditors by then. [e-mail]