DUBAI (Reuters) – Nakheel trade creditors have been offered a 10 percent return on a planned Islamic bond as part of debt restructuring plans by parent firm Dubai World DBWLD.UL, said a source familiar with the matter.
The source said that the 10 percent return — which is considered a starting point for negotiations — is a hefty offer, especially in light of Dubai World’s opening offer to its bank lenders of just one percent for two tranches of debt to mature in five and eight years.
“It’s about the importance of the real estate sector to the economy,” he said. “If Nakheel doesn’t succeed, what would happen to real estate in Dubai?”
The government is placing a great deal of importance on trade creditors because if they do not receive cash flow, it will put pressure on construction and real estate markets, which will affect workers at the firms and hurt the overall economy, he said.
A high interest rate on a tradable security will allow trade creditors to be able to sell the sukuk for more cash.
Under Dubai World’s restructuring plan, trade creditors will receive repayment of 40 percent in cash and of 60 percent in a tradable security.
The source said that the offer has been sent to creditors with a goal of offering the sukuk by July or earlier if negotiations between the property developer and its trade creditors are successful.