Bloomberg News

Nakheel Wrote Off $21.4 Billion After Dubai Property Crash

September 12, 2011

(Updates with bond sale in sixth paragraph.)

Sept. 12 (Bloomberg) -- Nakheel PJSC, Dubai’s biggest developer, told creditors it wrote down 78.6 billion dirhams ($21.4 billion) from the value of its real estate as property prices in the emirate crashed.

The Dubai government-owned company wrote off 301.4 million dirhams in the first half of last year, 73.8 billion dirhams in 2009 and a further 4.44 billion dirhams in 2008, according to its Islamic bond prospectus issued last month and obtained by Bloomberg News. After the write-offs, the company’s share capital dropped to 10.6 billion dirhams in June 2010 from 87.1 billion dirhams in 2008. Nakheel declined to comment.

Dubai’s property market had one of the world’s biggest reversals of fortune following the global credit crunch three years ago, with Deutsche Bank AG saying home prices slumped 64 percent since their peak in mid-2008. Nakheel was forced to reduce staff and halt work on projects including the man-made islands of Deira and Jebel Ali.

Dubai World, Nakheel’s former parent and one of the emirate’s three main state-controlled holding companies, roiled global markets in November 2009 when it sought to stop repayments on about $25 billion of debt. The company signed an agreement with its creditors in March to restructure the debt.

Nakheel had a profit of 58.9 million dirhams in the first half of 2010 compared with a loss of 13.4 billion dirhams a year earlier, according to the prospectus. The company had a loss of 76.6 billion dirhams in 2009 and a profit of 505.3 million dirhams in 2008, according to the document.

Liabilities

The company said Aug. 24 it would issue 3.8 billion dirhams of Islamic bonds to its contractors and suppliers as the last step in restructuring $16.1 billion of liabilities. Nakheel plans to issue an additional 1 billion dirhams of the bond as part of the 8.5 billion dirham program that it has set up.

The bonds, known as sukuk, pay a profit rate of 10 percent and are being used to pay 60 percent of what’s owed to contractors and suppliers. The remaining 40 percent is being paid in cash.

Nakheel has total assets of 77.5 billion dirhams as of end of June 2010. Emaar, Nakheel’s competitor and developer of the world’s tallest tower in Dubai, has assets of 61.9 billion dirhams across 15 countries, according to the company’s financial statement ending June 2011.

To reduce costs, the developer cut its workforce to 986 in March 2011 from 3,818 in October 2008, according to the prospectus. It’s also delaying some projects such as the Waterfront and Palm Deira.

Nine Projects

Nakheel expects to spend 7.4 billion dirhams this year and another 1.4 billion dirhams in 2012 to complete nine projects across Dubai, according to the prospectus. Nakheel said Aug. 24 it plans to complete building 7,982 homes in the 12 months ending December 2012. The value of its properties under construction was 52.3 billion dirhams at the end of June 2010.

Dubai’s property prices are expected to drop further as 54,000 homes will come onto the market from 2011 to 2015, Jones Lang LaSalle Inc. estimates. That’s about 15 percent to 20 percent of the existing supply, according to the real-estate broker.

--Editors: Shaji Mathew, Andrew Blackman

To contact the reporters on this story: Zainab Fattah in Dubai at zfattah@bloomberg.net; Arif Sharif in Dubai at asharif2@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net


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