Nakheel to offer sukuk to trade creditors

Nakheel trade creditors will be offered a large-scale Islamic bond as part of a debt restructuring plan issued by parent firm Dubai World last Thursday, a source close to the company said on Sunday.

The Dubai government pleasantly surprised the market last week when it promised to pay off Nakheel's upcoming Islamic bonds and Dubai World, and said trade creditors will receive full repayment of their agreed claims through 40 per cent in cash and 60 per cent in the form of a publicly tradable security.

Nakheel didn't elaborate on the form of tradable security that would be offered, but is expected to make a separate statement regarding the deal soon.

The source told Reuters that a sukuk was planned as it would allow the company to reach a larger universe of future bondholders from both conventional and Islamic financial institutions that must abide by sharia-compliant investments.

A spokesman for Dubai World declined to comment.

"The sukuk is proposed at this time, but other security structures are being considered as we want to ensure that the instrument is liquid as possible for trade creditors," a spokeswoman for the Dubai government said on Friday.

The size of the Islamic bond, or sukuk, will depend on the total amount owed to creditors but it is too early to estimate given the difficulty the company and creditors are having in valuing Nakheel's assets, he said.

Discussions between Nakheel and its creditors will likely continue into April and possibly May, making it unlikely to see an issuance before June, the source said.

The Nakheel restructuring plan fell under Dubai World's larger proposal to creditors to pay off about $26bn in debt. Dubai World rocked global markets last November when it said it was unable to meet is obligations.

A $10bn bailout in December from oil-rich neighbour Abu Dhabi prevented Nakheel from defaulting on its $4.1bn sukuk.

While it was widely expected that Abu Dhabi would step in once again, the government of Dubai came in as Nakheel's savior last week, ahead of its May 13 sukuk payment of $980m. Under the terms of the restructuring proposal, Nakheel will now be wholly owned by the Dubai government.