Dubai pride helps Nakheel to save face

September 3, 2009


By Jason Benham


It’s the property face of the Gulf’s business and tourist hub and the developer of palm-shaped islands visible from space – so Dubai will simply not allow property firm Nakheel to default on its huge $3.5 billion Islamic bonds which mature in December.


Just think of the bad publicity it would bring to the region, and there’s already been plenty of that. Another kick in the teeth is certainly not what Dubai needs. Plenty of critics have joined the ‘bash Dubai” bandwagon and several more are set to join the ranks at some stage. 


But any default would mark a failure for Dubai World, the state-owned conglomerate, and a castrophe for Dubai’s government, which has ploughed billions of dollars over recent years into making Dubai what it is today.


That leaves two more options – repayment or restructuring.”I would lean towards the repayment scenario,” said Fahd Iqbal, GCC strategist at EFG-Hermes in Dubai.”It would send a better signal to the market, and ultimately, I don’t think Dubai’s government has serious financial restraints since it should have recourse to the federal government. Dubai wants to avoid bad publicity and Nakheel is one of the key cornerstones of the Dubai story.”


A restructuring is also a possibility but appears to come second to a repayment, with some bankers and analysts saying the window of opportunity to restructure is diminishing.


But even in the likelihood of a repayment, Dubai has not done itself any favours by failing to address a lack of information about what will happen, and that only leads to more speculation and uncertainty.


A lack of clarity and transparency in the emirate’s property sector continues to weigh on investors’ minds. And it’s not just Nakheel’s bonds that are cause for concern. The market remains hungry for news on the planned merger of Dubai’s Emaar Properties and three local firms; the restructuring of troubled mortgage lenders Amlak and Tamweel and more clarity on property ownership.


Until then, most prospective Dubai investors are happy to look, but won’t touch.

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