Nakheel's Islamic Bond Undervalued On The Marketplace

The value of Nakheel's Islamic bond, or sukuk, is undervalued on the marketplace, the company's chairman said on Tuesday. The Dubai-based property developer, which completed a complex Dh59 billion debt restructuring last month, will issue the final tranche of its $1.63 billion Islamic bond by the end of 2011 and also expects to make a profit for the second consecutive year, Rashid Ali Lootah said following the opening ceremony of the Cityscape Global property expo.

There has been a muted response to Nakheel's sukuk with trade creditors flooding the market to offload the bonds during their first week of trading. Nakheel issued $3.8 billion of Islamic bonds to contractors and suppliers after the developer was unable to pay them. Lootah says there is nothing Nakheel can do about the market's reaction to the sukuk, whilst adding the developer was on track to achieve a 2011 profit in line with last year. "We think it [the sukuk] is undervalued; we do not plan to issue any more sukuk," Lootah said.

Nakheel made a profit of Dh860 million in 2010 against a huge loss of AED76.6 billion the previous year. Revenue has also increased from 10 per cent to 15 per cent so far this year due to greater occupancy in residential units and an increase of 20,000, or 70 per cent, in housing units, the Arabic daily Al Khaleeej reported earlier this week. The developer wrote off up to Dh78.6 billion of its real estate assets after Dubai’s property market crashed in 2008. However, Lootah said Nakheel was confident of delivering new projects over the next few years as the company announced a new residential development on the Palm Jumeirah. “We see stability in property prices and an increase in villa prices, it is a sign of a good recovery,” he said.

Nakheel has been selling land plots on “frond N” of the Palm Jumeirah and also recently sold a signature villa on “frond D” for a price they “did not expect”, said Aqil Kazim, Nakheel’s chief commercial officer, who yesterday gave details about the new Palm Residence, which comprises 102 beach-front town homes covering an area of 490,000 square metres. Kazim says the development is “good value for money” rather than affordable housing, “We have actually witnessed an increase in demand for projects on the Palm Jumeirah,” he said. “It has been a difficult year [for Nakheel] as we restructured our debt. We went back to the drawing board and we are determined to show that this residential project is the right project going forward,” he added.

According to Kazim, there is sufficient evidence that shows a strong demand for good products in new locations. “A lot of interest [in our properties] comes from UAE nationals but we have a largely unchanged demographic from the last 3-4 years in that there is a lot of interest from the subcontinent as well,” he said.