DUBAI (Reuters) – Property developer Nakheel’s restructuring plan is being complicated by new claims from trade creditors that could lead to more legal headaches, two sources familiar with the matter said.
Unlike parent firm Dubai World, which secured unanimous support from lenders within a year for its $25 billion debt restructuring plan, Nakheel is struggling to negotiate terms with a mass of contractors that hold the keys to its many delayed projects.
“Nakheel is a much more complicated restructuring than even Dubai World,” said one source with direct knowledge of Nakheel’s restructuring plans.
“Dubai puts a lot of importance on the trade creditors for the sake of the economy so there has to be a lot more room for negotiation.”
Nakheel was at the center of Dubai’s real estate boom with projects such as islands in the shape of palms and a map of the world.
Under the terms of its $10.9 billion restructuring proposal, trade creditors will receive 40 percent in cash and 60 percent repayment through an Islamic bond with a 10 percent return.
Nakheel, which began making cash payments in June, had predicted an overall agreement within weeks. But the ongoing battle with trade creditors over claims has delayed the sukuk’s issuance. It is now slated for the first quarter next year.
While more than 80 percent of trade creditors have agreed to the deal — still shy of the 95 percent needed to finalize the restructuring — some of those creditors are presenting additional claims for damages, such as lost business or damaged equipment.
Contractors often come back with additional fees and expenses related to unexpected occurrences during a project – add-on costs that developers are accustomed to dealing with.
But additional claims can become a cumbersome problem for a company in distress, adding to its legal costs and potentially creating more delays.
“There will be some back and forth between Nakheel and the trade creditors for a while,” said the other source with direct knowledge of the restructuring. “Contractors tend to exaggerate the amount and it’s going to take time for the two parties to reach the settlement amount that is reasonable.”
The company declined to say how much in additional claims it has received but said any such claims once settled will also be paid through 40 percent in cash and 60 percent sukuk.
“Nakheel has retained accredited cost consultants to assist in the claims evaluation process,” a Nakheel spokesman said in an email statement to Reuters recently in response to questions on claims. The spokesman added that “sufficient provision has been made for all claims in the restructuring.”
Trade creditors are eagerly awaiting any offers from Nakheel to settle additional claims but are also keeping their options open if they are unhappy with how the company is handling the negotiations, said Mark Blanksby, partner at law firm Clyde & Co.
Blanksby, who represents some contractors, said creditors may look to a third-party adjudicator if negotiations stall.
Dubai created a special tribunal to hear cases related to the Dubai World restructuring last year and early rulings have been seen as favorable toward trade creditors, which could encourage more legal action down the road, lawyers said.
Nakheel suffered a blow last week when the tribunal found that it could not charge other developers delay fees for projects.
The case followed a hearing for another pending lawsuit by a trade creditor, in which Nakheel was ordered to pay legal fees for the claimant.