Nakheel – King of Dubai Real Estate

Nakheel - King of Dubai Real EstateFounded in 2000, Nakheel Properties is a Dubai based real estate developer. The company was initially owned by Dubai World, but was separated as part of the restructuring completed in July 2011. Nakheel is now 100% owned by the government of Dubai through the Dubai Financial Support Fund (DFSF). The end of restructuring was marked with the issuance of Sukuk to its trade creditors. Nakheel is one of the largest real estate companies in the UAE by size of its land bank. It has development rights over 1 bn square feet of onshore land and right to reclaim over 4 bn square feet of seabed area, of which 300 mn square feet has already been reclaimed. Some of the notable properties of the company in Dubai are Palm Jumeirah, The World, Jumeirah Islands, Jumeirah Village, Jumeirah Park, Jumeirah Heights, Ibn Battuta Mall, Discovery Gardens, International City, The Gardens, Al Furjan, and Dragon Mart.

Nakheel 2016 Sukuk is one of the highly sought after papers in the Middle East region owing to general improvement in Dubai’ macroeconomic environment, scarcity of high yield papers in the region, and the company’s improving track record of delivering several residential projects in Dubai. We expect Nakheel to continue to show strong operating performance and successful deleveraging trend in the medium term.

The company was in deep trouble at the end of 2009, when the government of Dubai requested for a standstill on debt of Dubai World and some its subsidiaries including Nakheel. However, Nakheel has emerged out as a winner through this challenge. On 14 July 2010, Nakheel held formal meeting with bank creditors and Dubai to propose the restructuring terms, which were agreed unanimously. It made total payments of AED33.1 bn or ~USD9.01 bn since its restructuring. As per the top wealth management firm this debt reduction was achieved through a combination of DFSF’s capital injections and equalization of existing claims.

Despite 100% ownership by the government of Dubai, Nakheel Sukuk 16s traded at a significant discount during initial months of its launch. This was largely due to the fact that trade creditors were the largest holders of the notes and they are typically don’t hold or invest in bonds. They just wanted these securities to have a liquid market to get out of it and receive cash on an immediate basis to fund their regular projects.

Nakheel papers are likely to perform well in the medium term owing to strong demand for Dubai related bonds in the market. Investors are getting comfortable with Dubai’s ability and willingness to repay bondholders despite high leverage debt profile of the Emirate. The other trend which is benefitting operations of Nakheel is flow of money from protest hit MENA countries – Egypt/Syria into villas/apartments in Dubai. Palm Islands are attracting a lot of demand from these buyers. We have seen it translating into strong top line results for the company in the past two years.