Dubai Crash Update 01/12

Following the announcement on November 25 from the Dubai Government, property developer Nakheel said Monday it has asked for three of its listed Islamic bonds, or sukuk, on Nasdaq Dubai to be suspended until it is in a position to inform the market more fully. "Following the announcement on Wednesday Nov. 25 from the government of Dubai, Nakheel has today asked for all three of their listed sukuk to be suspended until it is in a position to fully inform the market," it said in a statement on the Nasdaq Dubai. Nakheel is one of two flag ship companies, along with Dubai World, which announced last week that they would seek a debt standstill agreement from creditors, until May 2010.

As Dubai World moves to seek a standstill on the group's debt for a period of six months, a top official from Dubai Government has made it clear that the government has not guaranteed any of these debts.

The issue gains greater significance now as the nearest repayment falls on December 14 when the $3.5 billion (Dh12.8bn) sukuk matures.

The prospectus of the sukuk issue has said that: "Investors should note that the Government of Dubai does not guarantee any indebtedness or any other liability of Dubai World."

Fixed income analysts said to Emirates Business that in the case of a sukuk, the Islamic version of bonds, the issue is always backed by asset. With regards to Nakheel sukuk, which is maturing within two weeks, the assets consist of the leasehold interest in all land, buildings and other property known as DWF South and Crescent Lands at Dubai Waterfront.

The offer document has said that the return on the certificates shall be calculated on the basis of a fixed return of 6.345 per cent per annum.

The prospectus has said the proceeds of the issue of the certificates will be used by the issuer to purchase the sukuk assets in accordance with the terms of the purchase agreement.

"No assurance can be given that if Dubai World were to produce and publish audited financial statements on a consolidated basis that Dubai World's consolidated financial position, including its consolidated assets, liabilities, revenues and cash flows would not be significantly different from the information that can be drawn from the financial statements of Nakheel," it said in the offer document.

The document invited the attention to the fact that Dubai World is dependent on the operations of and cash flows generated by its subsidiaries, and therefore any claim that may be made by a creditor on Dubai World will effectively be structurally subordinate to any claims made by creditors directly on Dubai World's subsidiaries.

On the trading of the sukuks, the issuer said there can be no assurances that a secondary market for the certificates will develop, or if a secondary market does develop, that it will provide the certificate holders with liquidity of investment or that it will continue for the life of the certificates.

The issuer used the document to caution the investors that each of the issuer, Dubai World, and each co-obligor has the majority of its assets in the UAE and accordingly its business may be affected by the financial, political and general economic conditions prevailing from time to time in the Middle East generally.