Nakheel running a tighter ship

Nakheel revamped its corporate governance policies in the wake of reporting Dh76.6 billion in loss in 2009, documents reveal.

As part of an overall revamp Nakheel has centralised decision-making and established an independent internal audit department. Paulo Vecina / The National

Nakheel has revamped its corporate governance and business practices after reporting a Dh76.6 billion (US$20.85bn) loss in 2009, according to a bond prospectus sent to investors.

While not specifically mentioning past problems, the company's filing acknowledges a wide range of issues addressed by management, offering an unusual glimpse at the inner workings of the developer behind some of Dubai's biggest projects, including Palm Jumeirah and The World.

The changes include limiting the ability of executives to make financial commitments of more than Dh10 million without the approval of the board of directors and a new public tender process for awarding construction contracts. Nakheel executives could not be reached for comment on details of the report.

A new board of directors was installed at the company in March last year. As part of the restructuring process, a review was launched of the company's "financial, reporting and decision-making controls", according to the filing.

"It's something we'll see far more around the region," said Matthew Green, the head of consultancy for the UAE office of CB Richard Ellis, the property company. "Companies need to have that accountability."

Nakheel's executive committee now meets on a weekly basis and approves expenditures ranging from Dh500,000 to Dh10m. The company has also centralised decision-making and established an independent internal audit department. Contracts awarded through the public tender process must also be approved by the executive committee or board of directors, depending on the value.

The revamped company is transitioning away from a role as an "active developer" to place more emphasis on managing its land bank and serving as master developer for larger projects, the company said in the filing.

Nakheel has halted work on land reclamation projects - the man-made islands that made Nakheel's reputation - in favour of a menu of "near-term" projects that it hopes to complete by mid-2013.

It will need Dh8.8bn to complete the projects, which include 245 apartments in the Clusters section of Jumeirah Heights and 819 villas in the Al Furjan development.

The company is also considering selling income-producing assets, including apartment buildings in International City and Discovery Gardens, "depending on market conditions".

"It is certainly going to be a crucial couple of years for them," Mr Green said. "They are shifting from a sales-based company to one that needs to develop income-related projects." Nakheel has been moving to cut its expenditures, including a 74 per cent reduction in staff, from 3,818 to 986 employees, since October, 2008, as it suspended building and marketing projects. Further staff cuts are likely as the company completes projects already under way, the filing said.

In the past, each project had its own office and dedicated management team; now those roles have centralised and consolidated, the company reported. The company is also changing its relationship with homebuyers. Historically, Nakheel was granted an exception to the law requiring developers to establish an escrow fund for payments from buyers, but now it has "agreed with the Dubai Land Department to implement escrow accounts for all its projects".

Nakheel completed a Dh60bn restructuring last month, including a formal separation from its former parent Dubai World. The prospectus was issued to the financial community to support an Islamic bond, or sukuk, the company issued to help repay contractors.

Creditors have received 40 per cent of the money owed in cash and 60 per cent in the sukuk.

Nakheel recorded a Dh58.2m profit in the first six months of last year, after reporting the Dh76.6bn loss in 2009. The losses primarily reflected the writedown on the value of the company's property as prices dropped following the global financial crisis.