Dubai's Nakheel dismisses debt concerns as profits top Dh2bn

The developer said its profits soared by 57 per cent in 2012, dismissing an analyst's warning over its Dh4.2bn bond obligations.

A view of the Palm Jumeirah developed by Nakheel. The Dubai developer says it hopes to start two more retail projects on the man-made island this year. Amy Leang / The National

The Dubai property developer Nakheel yesterday dismissed concerns over its debt burden as it unveiled a Dh2.02 billion (US$549 million) profit for last year.

The company, which restructured debt and received financial assistance from the Dubai Government following the property crash four years ago, said profits were 57 per cent higher than the previous year.

Revenues stood at Dh7.8bn, up 91 per cent on the previous year. The developer disclosed its financial results the day after Exotix, a boutique investment bank with offices in Dubai, cut its rating on Nakheel's sukuk bonds to "sell". It warned in an advisory note that the bond was no longer pricing in the risk of a default.

Exotix suggested that Nakheel may fall 70 per cent short of the funds needed to repay its sukuk debt, which is due in August 2016, and that the market currently overestimates the Dubai government’s ability and willingness to repay the company’s obligations.

“We will prove them wrong,” said the chairman Ali Rashid Lootah,  dismissing Exotix’s fears. “We are more than confident [of being able to repay the sukuk].”

Nakheel said its total debt stands at Dh12.2 billion, including Dh8bn in bank debt and Dh4.2bn in sukuk. It said it completed interest and profit repayments of about Dh800m last year, and has made cash payments of about Dh10bn to trade creditors and contractors since the start of its restructure.

It added that refinancing was one option it could pursue and that the company had been approached by local and international banks about refinancing its loans.

Mr Lootah said that the Dubai Financial Support Fund, the state body that owns Nakheel, is still able to provide another Dh15.2bn of cash to the developer. At present, Mr Lootah said Nakheel had received Dh11.58bn from the total Dh26.78bn the fund had committed to provide to the company.

“The Dubai Government is committed to help us whenever it is required. We have options also to look for refinancing – that’s open to us. The company is doing well. The results speak for themselves.” Prices for Nakheel sukuk rose 37 per cent last year, which Mr Lootah said was a sign of confidence.

“You can tell from the price of the sukuk. That’s a sign of confidence. This is demand in the market. If there is any doubt about our ability to pay that the price would not be so high simply speaking,” he said.

“I don’t think the financial markets would have any issues dealing with us,” he added. “We’re serving our sukuk interest and our bank debt on time.”

He added that the company was considering issuing a new tranche of sukuk in the coming year and that Nakheel currently has Dh600m of cash in the bank.

Nakheel said its long-term customer liabilities have been significantly reduced – amicably – by about Dh7.3bn through consolidation and swap schemes offered to a large number of customers.

The company said it had leased “almost 100 per cent” of the space at its Dragon Mart and Ibn Battuta Mall and the residential and retail elements of its International City, Discovery Gardens and Garden View Villas were now 92 per cent leased.

“The figures look good but they are coming from a very low base,” said Sebastien Henin, a portfolio manager at The National Investor. “As everybody says, the question with Nakheel is not about liquidity, it’s about debt.

“Yes, they should get the backing of the Dubai Government and the bonds over the last 12 months have put in an amazing performance. But the spread is now very tight and doesn’t seem to include the small possibility that they could get no backing.

“Emaar is very well positioned in the market but you can’t say the same about Nakheel.”

Nakheel’s retail rental revenues grew 23 per cent during last year, while rental revenues on its housing portfolio were up 17 per cent.

It said that it hoped the two retail projects it announced on the Palm Jumeirah would start on site this year. “We are handing over around 15 to 20 [housing] units each day,” said Mr Lootah.