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Trade creditors keen to sell Nakheel bonds

Bids invited, but buyers are so far limited

Gulf News

Dubai: Trade creditors holding the recently issued first tranche of developer Nakheel's five-year Islamic bonds, or sukuk, are inviting bids for the paper, but buyers are so far limited, traders said.

The $1.03 billion (Dh3.78 billion) issue, the first instalment of a total $1.31 billion offered as part of a restructuring deal to repay trade creditors, was issued at the end of August, and offers a profit rate of 10 per cent.

Two market sources told Reuters that investment bank Morgan Stanley was holding an auction for Dh320 million of bonds offered by an undisclosed seller.

One of the sources, a Gulf-based fixed income trader, said there were about six banks in the market collecting bids for the bonds, while another said some banks were sourcing paper from creditors directly, to sell on to investors or hold themselves.

"There is definitely a great deal of interest among [trade creditors] looking to trade," said one person familiar with the matter, who declined to be identified.

"The creditors are actively investigating the pricing and there's an appetite for it. Some are taking the view of selling the entire holding, while others are looking to sell a portion and hold on to some of it for the interest."

Nakheel has indicated plans to eventually list the bond on Nasdaq Dubai.

Buyers who have expressed an interest include US investors, including hedge funds, London banks, and some regional relationship banks the trader said.

In July it emerged that a Hong Kong-based distressed debt firm founded by ex-Deutsche Bank veterans had approached trade creditors to taking the claims off their hands.

Latest bids

Latest bids on Nakheel 2016's range between 78.289 and 78.500, corresponding to a yield of between 16.6 per cent and 16.3 per cent, according to Thomson Reuters data, down from bids of just over 80.000 earlier in the day.

"Most contractors have already received 40 per cent of their claim in cash. If they manage to monetise the remaining 60 per cent [the sukuk] at current levels, this gives them an aggregate recovery on their Nakheel exposure of almost 90 per cent," said Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi.

"This is pretty good, given the severity of this situation and also where estimated recovery rates stood some 18 months ago," Bhogaita said, adding that though some trades were being executed in the market, volumes were not yet significant.

The developer is restructuring a total of $16.06 billion in debt, including $8.71 billion of government debt, which is to be converted into equity.