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Last week's news marked just the latest in a string of bad press days in the recent history of Nakheel, a company which could once do no wrong. Pre-2008, the developer dazzled Cityscape attendees with extravagant displays, state-of-the-art scale models and no-expense-spared videos backed by stirring music and narrated in earnest tones.
The hype meant that Nakheel was once best known for the visionary design and development of its man-made islands, the Palm Jumeirah and The World, which altered the coastline of Dubai dramatically and drew the world's attention to the small Gulf emirate. Today, however, confidence has given way to circumspection - via a close brush with collapse.
The developer was at the heart of Dubai's debt crisis in 2008, when a real estate boom went bust and Nakheel's parent company Dubai World was forced to delay payments on around Dhs200bn of liabilities. Nakheel was responsible for a significant portion of these liabilities, and it was almost three years before the real estate major was able to announce details of its five-year debt restructuring programme, which included the issuance of an Dhs4.8bn Islamic bond in part payment to trade creditors. In August this year, Nakheel offered creditors repayment of 40% cash and the remaining 60% in the form of an Islamic bond, or sukuk, at a profit rate of 10%.
Restructuring the balance sheet
"Nakheel had two options when the crisis hit: either sell assets at distressed valuations, and by assets we're mostly talking about land reclaimed from the sea, or restructure and try to salvage as much value out of those assets as possible," explains Majed Azzam, a real estate analyst at AF-HC Securities.
"It was a smart move on behalf of the government to bail Nakheel out, and now the company's balance sheet is restructured, it can focus more on operations than on staying out of bankruptcy," he continues. "At the same time, while some of Nakheel's properties might be vacant, they do have owners, so they are not sitting on the books of the developer. The pain is spread out, and that's vital for cash flow at a developer."
In total Nakheel is restructuring some Dhs59bn of liabilities, including Dhs32bn to Dubai government, Dhs19bn to trade creditors and Dhs8bn to banks. And while it has settled around 60% of liabilities linked to buyers in its stalled real estate projects - representing about Dhs10bn - by offering investors homes in completed Nakheel projects or a credit switch to another investor or project, the company still faces an uphill struggle to redeem its reputation. Indeed, even after the announcement that of the debt restructuring deal, Nakheel had to admit it was delaying the issuance of Islamic bonds to its trade contractors after bank account details of some of its creditors were found to be inaccurate.
Furthermore, it was this week revealed that Nakheel wrote down Dhs78.6bn from the value of its real estate - Dhs301.4m in the first half of last year, Dhs73.8bn in 2009 and a further Dhs4.44bn in 2008, according to its Islamic bond prospectus issued last month and obtained by Bloomberg News.
Delivery of units
Back on the building site, Lootah said recently that the firm will deliver almost 8,000 homes in nine developments across Dubai before end-December 2012, in projects including Jumeirah Islands, Al Furjan as well as Badrah and Veneto at the emirate's Waterfront project.
Staff
