Tamweel bonds fail to gain from accord

Dubai: Islamic bonds of Tamweel PJSC, the United Arab Emirates-based mortgage lender, have failed to benefit from the Dubai World debt accord after being the worst performing sukuk in the country in the past five months.

The yield on Tamweel's 4.31 per cent sukuk due in 2013 surged 8.67 percentage points, since an April 13 low. Yields on the debt climbed six basis points to 19.64 per cent since September 9, the day before Dubai World unveiled an accord with 99 per cent of creditors. Yields on notes from Dubai World's DP World Ltd. fell 22 basis points in that time.

While the state-owned holding company reached an agreement with creditors to alter the terms on $24.9 billion (Dh91.4 billion) of debt, government-controlled businesses are still struggling to meet obligations. A government plan to merge Tamweel, which has a $235 million loan due in January, with Amlak Finance PJSC has been in the works for 22 months. Both shares have been suspended since 2008.

"Dubai is not out of the woods yet," Raj Madha, a Dubai-based bank analyst with Rasmala Investment Bank Ltd. said in a phone interview yesterday. "It's nice that we cleared the Dubai World hurdle, but there are plenty more hurdles to clear."

Dubai International Capital LLC, an investment arm of Dubai Holding LLC, presented a plan to creditors to sell assets over five years to repay $2.6 billion, two people familiar with the plan said yesterday.

Second extension

Dubai Holding Commercial Operations Group LLC, a real estate and hospitality group owned by Dubai Holding, received a second extension on repayment of a $555 million credit line, the company said in a statement on September 7.

Dubai borrowed $109.3 billion as it transformed itself into a financial-services and tourism hub, and the International Monetary Fund estimates the emirate has about $15.5 billion of debt due this year. The deepest financial crisis since the 1930s eased Dubai property prices by more than 50 per cent from their peak in August 2008 as mortgages dried up, according to estimates from Colliers International.

The extra yield investors demand to hold the Dubai Department of Finance's dollar sukuk rather than Malaysia's 3.928 per cent Islamic note due June 2015 narrowed 55 basis points to 355 basis points this month, according to prices from Royal Bank of Scotland Group Plc.

Global issuance of Islamic debt dropped 20 per cent to $10.7 billion this year, according to data compiled by Bloomberg. Islamic bonds have returned 11 per cent in 2010, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets gained 12.7 per cent, JPMorgan Chase & Co.'s EMBI Global Diversified Index showed.

The average yield on sukuk by Gulf Cooperation Council borrowers fell 254 basis points to 6.22 per cent since the Dubai government sought to restructure debt in November.

The tumble in Tamweel's 4.31 per cent sukuk since April 13 marks the worst performance among the 21 Islamic bonds of UAE-based entities tracked by Bloomberg.