Nakheel had been at the centre of Dubai’s building boom, but when things went wrong, it was squarely blamed for being the principal destroyer of that boom. The post-2008 phase saw the rise of a new star in Arabtec, which symbolised resurgence in the Dubai property market.
Now in what turns out to be the ultimate paradox, the former destroyer is helping salvage the situation for Dubai when the market’s new darling has sunk into an abyss, triggering one of the worst sell-offs in the stock market and raising alarms about an impending crisis.
The international media is raising the pitch on the sell-off, comparing it to the beginning of a property bubble similar to the 2008 crash. Analysts have interpreted the Arabtec debacle as a confirmation of the froth that has been forming in the market for a while. And some of the comments have echoed the anti-Dubai tinge that had characterised the post- 2008 crash analysis, particularly in the western media.
It was amid such gloom that Nakheel last week announced its intention to advance repayment of its bank loans four years ahead of time and that too drawing from its own internal resources. This means that Nakheel would settle $1.5 billion worth of loans in the coming weeks, instead of in 2018, which was the target date agreed to by creditor institutions as part of the rescheduling.
The advance repayment is estimated to save Nakheel at least Dh400 million in interest, which the company would have paid as per the original repayment schedule.
The restructuring process had imposed severe restrictions on Nakheel’s business plans, while there was virtually a siege on new credit from banks and financial institutions. This forced the developer to rework its strategy and focus more on new revenue-generating businesses, such as hospitality, and shed quite a bit of flab from its corporate and management structure.
This is in sharp contrast to the tendencies shown by the company during the boom phase. The overindulgence saw the company embark on grandiose schemes, which were neither practical or desirable from the point of view of the then market conditions. There was hardly an area that the company did not lay hands on. At one point of time, Nakheel and its group company Dubai World had even planned a newspaper.
Asset write-off
But, as the property market crashed, everything went awry and Nakheel had to write off over $20 billion in assets. The company managed to avert a humiliating default with the help of a bailout provided by the government. It is in this context that the turnaround becomes remarkable.
The Nakheel announcement has, in fact, tempered analyst views about the seriousness of the developing crisis in the Dubai property sector. While some parallels are being drawn with the 2008, it has not been lost on market analysts that the two situations are fundamentally different.
The latest developments have not led to any sell-off in the property market, unlike in the peak of the crisis, when there was desperation on the part of all stakeholders to get out. But orderly exits were simply out of question as the conditions prevailing at that time frustrated any such move.
Similarly, the crisis this time is concentrated more on the stock market and the impact on the overall property market or the banking industry is not seen to be as serious. As for the stock market, the act may not be over yet as analysts believe that despite a 25 per cent fall in valuations, Dubai stock prices may still be overvalued, indicating further pain ahead.
— The writer is a journalist based in Dubai
