Dubai’s Possible Nakheel Default to Affect $5.25 Billion Debt

Dec. 13 (Bloomberg) -- Nakheel PJSC’s possible non-payment of its Islamic bond due tomorrow will trigger cross defaults on two other securities, bringing the total of affected debt to $5.25 billion, bond documents show.

Investors are waiting to see if the Dubai state-controlled developer will pay the maturing $3.52 billion Islamic bond, known as sukuk. The Dubai government said Nov. 25 state-run holding company Dubai World is seeking a “standstill” agreement on its debt, including for the Nakheel unit.

The cross default would trigger if “the Nakheel Holdings Group, Nakheel World or the guarantor shall fail to make any payment,” at the expiration of the grace period, the bond documents said. Tomorrow’s deadline is followed by a 14-day grace period to remedy the default and to prevent bondholders from starting legal proceedings.

Nakheel’s other two bonds are a 3.6 billion-dirham ($980 million) floating-rate note due in May next year and a 2.75 percent $750 million sukuk maturing in January 2011.

“The chances of a full payment at this point are very slim,” said Nish Popat, head of fixed income at ING Investment Management Dubai Ltd. “There is a lack of clarity on how the standstill initiative is progressing. Investors are just waiting and speculating.”

Nakheel’s bond maturing tomorrow rose 1 percent to 53 cents on the dollar on Dec. 11, on speculation that the developer may seek to avoid a default. The bond has dropped more than 50 percent since the Nov. 25 announcement. Dubai World began talks to restructure $26 billion of debt.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHBjZ3NlAIc8&pos=3

JUst to recall everybody which banks might be "involved" :

Royal Bank of Scotland Group Plc was the biggest underwriter of loans to Dubai World, the state company seeking to reschedule debt, while HSBC Holdings Plc has the most at risk in the United Arab Emirates, according to JPMorgan Chase & Co.

RBS, the largest U.K. government-controlled bank, arranged $2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in a report today, citing Dealogic data. HSBC, Europe’s biggest bank, has the “largest absolute exposure” in the U.A.E. with $17 billion of loans in 2008, JPMorgan said, citing the Emirates Banks Association. Abu Dhabi Commercial Bank PJSC may be owed $1.9 billion by Dubai World, making it the largest creditor outside the emirate, said two people familiar with the companies.

“The market is very nervous about exposure to Dubai and RBS’s name has been associated with it as both a lender and a book runner,” said David Williams, a banks analyst at Fox-Pitt Kelton Ltd. in London. “People are concerned it’s going to produce a new wave of losses. Dubai is driving everything in the market at the moment.”

 

I had sent a business proposal to Nakheel developers but they said "no" to my proposal. Now Nakheel is destroyed.

 

1) Those bonds "suck-uck".
2) When emerging market bonds turn into submerging market bonds, be careful!

 

?.......short-sell crude oil?