Money Matters, Simplified.
Nakheel bonds soar after Dubai announces restructuring plan
by Ishita Sood - March 25, 2010 - comments
Markets, which reacted positively to the new plan, sent Dubai's benchmark stock index rising 4.3 percent and Dubai's five-year credit default swap rate by 0.50 percentage points.
Dubai World’s subsidiary Nakheel saw its Islamic bonds on a high Thursday, after Dubai government announced a restructuring plan for the full repayment of Nakheel’s debt.
Nakheel's dirham-denominated Islamic bond jumped 19 points while its dollar-denominated Islamic bond went up by 26.75 points, the highest since July 2008.
“Over the last 2-3 days there has been accumulation of Dubai-related credit protection and we saw some CDS buying ahead of the statement, now people are closing long protection positions,” said Luis Costa, director in emerging markets strategy at Citi.
The new plan
The Dubai government will be taking full ownership of Nakheel after the restructuring plan is completed.
“The government is a creditor of Nakheel, in addition it is putting $8 billion of new cash. Ultimately that will be equitized as well.
“The product of this is Nakheel will cease to be a subsidiary of Dubai World and it will become a directly held subsidiary of the government. So the government will end up owning 100 percent,” said Aidan Birkett, Dubai World's chief restructuring officer.
“This proposal represents the best possible solution for all stakeholders. It follows extensive discussions with our creditors, a thorough review of Dubai World’s businesses and significant financial support from the Government. It offers the Company a strong future and the opportunity to maximise the value of its assets over the medium to long term,” he added.
Birkett also said that Dubai World is under no pressure to sell its holdings in big names like British ports business P&O, luxury Madison Avenue retailer Barneys, stake in Canadian circus troupe Cirque du Soleil and Queen Elizabeth II cruise liner.
Banks find new plan attractive
Dubai World officials, who spent the whole of Wednesday discussing the proposal with various banks, are expected to reduce uncertainty and help materialize the plan.
After the government’s decision to inject $9.5 billion for repayment of Nakheel debt, Birkett said that Wednesday’s meeting with banks turned favorable as the banks gave positive response, saying that it is a “very attractive deal for creditors.”
Markets, which reacted positively to the new plan, sent Dubai's benchmark stock index on a rise by 4.3 percent and Dubai's five-year credit default swap rate by 0.50 percentage points.
The new plan is a hopeful sign of recovery in Dubai's failing real estate industry, according to Birkett.