Developer's Islamic bond hits record of 108.33 cents Nakheel's plan to pay more than $1 billion of bank debt early may herald further gains for the Dubai real-estate developer's Islamic bonds. Mashreq Capital DIFC Ltd and Quantum Investment Bank Ltd said Nakheel's payments might help extend a rally that cut its sukuk yield by 220 basis points in the past 12 months to a record 6.51 per cent today, according to data compiled by Bloomberg . That compares with an average 10 basis-point increase to 4.92 per cent on January 3 for Middle East Islamic bonds tracked by JPMorgan Chase & Company indexes. Nakheel said on January 4 it will bring forward payments as it benefits from a recovery in Dubai property prices. Knight Frank LLP , an independent global real estate consultancy, expects values in the emirate to rise 10 to 15 per cent this year, the most in the world. "Investors weren't expecting this and it's very good news," Montasser Khelifi , a Dubai -based senior manager for global markets at Quantum Investment , said by phone. "The prepayments for this year represent almost half of Nakheel's bank debt and will give them many options, including the ability to refinance." Nakheel will pay Dh2.35 billion ( $640 million ) in February, 15 months ahead of schedule, and a further Dh1.65 billion in August, Chairman Ali Rashid Lootah said at a Press conference. The company's Islamic bond due August 2016 , which at face value pays a profit of 10 per cent a year, rose to a record of 108.33 cents on the dollar today. "There is potential for further outperformance from the bond, particularly on the back of this news," Abdul Kadir Hussain , who oversees about $700 million as chief executive officer at Mashreq Capital in Dubai , said by phone. "The company has sent a strong message" to lenders, he said. Nakheel said in June that it would seek to extend the maturity of its bank debt to 2023 from 2015, and improve borrowing terms. The Islamic bond, which complies with the religion's ban on interest, totals about Dh4.4 billion and was issued to trade creditors as part of measures to delay more than Dh27 billion of debt. Nakheel's profit for the nine months ended September 30 was Dh1.77 billion, up from Dh1.12 billion a year earlier, the company said in an October 7 statement. "Management's announced intention to prepay Nakheel's bank debt should definitely be supportive for the sukuk's price," Gus Chehayeb , a Dubai -based research director for the Middle East at Exotix Ltd , said by phone. "Although it would be surprising for the yield to fall much further from its currently tight levels." Lootah said on January 4 the company won't have any problems paying back its other bank debt or the sukuk. A spokeswoman for Nakheel declined to comment when contacted by phone.
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