Wednesday, December 02, 2009

The land backing the Nakheel sukuk

The FT has a great article on the Dubai Waterfront (the site of the collateral for the Nakheel sukuk and the overlapping nature of English and UAE laws and the impact of the Shari'ah-compliant structure of the sukuk. The land backing the Nakheel sukuk is subject to a 50-year lease holding that was transferred to the SPV and is supposed to be repurchased by Nakheel to redeem the sukuk. The investors were granted a fully-perfected mortgage over the land, but the ability to enforce this mortgage under UAE law is uncertain.

Sakoui, Anousha and Robin Wigglesworth. "Sukuk restructuring crunch-point looms" Financial Times, December 3, 2009.
The open desert near Dubai’s Jebel Ali industrial area was supposed to be the site of Nakheel’s grandest vision – the Dubai Waterfront.

Here, the property developer wanted to build a city twice the size of the Hong Kong island, with skyscrapers for 1.5m residents, all ringed by a 75km canal.

But Dubai and Nakheel’s financial crisis has stalled the project, perhaps permanently, making it another multi-billion dollar casualty of the emirate’s crisis.

Unfortunately for Nakheel’s many creditors, the barren, dusty land of the proposed Dubai Waterfront is also the security behind the developer’s $3.52bn (£2.1bn, €2.3bn) Islamic bond, which is due in less than two weeks.
One of the uncertainties is that many of these financings have been structured to comply with Islamic law, but created under English law. Bondholders in one of the Nakheel bonds, which needs to be repaid with about $4bn on December 14, have the benefit of a guarantee from Dubai World which some investors believe would be enforceable under English law.

Some bondholders are currently in the process of forming a group that would represent in excess of 25 per cent of the outstanding issue, which under English law would be enough to block a restructuring.

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