Dubai:Nakheel, developer of Dubai's Palm island, ruled out selling bonds to fund hotels, malls and retail outlets, betting its recovery from the brink of default five years ago will win it cheaper funding from banks.
"We will not go for a bond," chairman Ali Rashed Lootah said in a June 29 interview. "Bonds are more expensive than commercial lending from the banks actually. We are in a strong position to negotiate with lenders, with banks, and get good terms especially after what we have achieved."
Nakheel, which drove Dubai near default in 2009, announced plans on June 25 to repay all of its Dh5.54 billion ($1.5 billion) of bank loans four years early as real estate demand surges and customer collections improve. While the yield on its August 2016 sukuk fell to a record 4.62 per cent two days later, paying off the debt would end restrictive terms from its restructuring and allow the developer to seek better financing options, Lootah said on June 25.
"Banks should be willing to look at them again and possibly offer them better rates" if Nakheel's balance sheet is strengthening and it improves enough, said Asjad Yahya, an analyst at investment bank Shuaa Capital.
Bank lending in the United Arab Emirates jumped 8.3 per cent in April from a year earlier, central bank data shows.
The loan-to-deposit ratio at the country's 51 banks, a measure of liquidity, improved to 98 per cent at the end of April from 106 per cent in March 2010, data shows. That helped reduce the three-month Emirates interbank offered rate, or Eibor, a benchmark used to price some loans, to 0.73 per cent on Monday, the lowest since at least 2006.
Nakheel could probably borrow at rates about 200 basis points over three-month Eibor, according to Jaap Meijer, head of equity research at Arqaam Capital in Dubai.
The yield on Nakheel's Dh4-billion, 10 per cent sukuk maturing in two years rose two basis points to 4.64 per cent on Monday. That's down 1.98 percentage points from the start of the year and compares with an average rate of 4.16 per cent for JPMorgan Chase's MECI Sukuk index on June 27.
The UAE's central bank warned on June 8 that the country's real estate market may be overheating. A restructuring at Arabtec, the emirate's largest listed contractor, stoked concern the market's property-led gains in the past two years were overdone.
Dubai stocks posted their biggest monthly retreat in almost six years in June as investors fled property stocks.
Nakheel is planning to develop income-producing assets, including 2,900 hotel rooms in the next three years as well as 7.9 million square feet of shops, restaurants and leasing space. Its cash collection from customers reached Dh25.1 billion, compared to Dh18.2 billion originally envisaged, according to documents provided by the company.
The developer has achieved Dh23 billion worth of 'improvements' from the original restructuring plan. That includes sales of properties.