CORPORATE DEBT RESTRUCTURING
CORPORATE DEBT RESTRUCTURING NAKHEEL Major property developer in
DubaiBefore 2010, it was owned by Dubai World. Developed iconic
properties like Palm islandsCompany was doing well and was having
strong margins before the crisis of 2009.About NakheelThe property
market in Dubai slumped after the real estate crash in 2009 as a
result of the global economic crisis
Customers backed out from buying real estate assets as many lost
jobs, and as the sector was crashing
Many buyers who had booked the apartments stopped paying the
installments to the developer as they didnt want the property.
As a result, the cash of the company was stuck in under
construction buildings and faced major issues in servicing the debt
taken from Banks.NAKHEEL : CRISIS IN 2009The company was on the
verge of Bankruptcy.
The company had Dh 59bn debt on the Balance sheet
These included debt from
Trade creditors (Dues to Suppliers and Contractors).Loans taken
from many Banks Investors in their bonds and hybrid securities
Dubai government
NAKHEEL DEBT RESTRUCTURINGNakheel restructuring was a complex
exercise as it was not just any real estate company.
Since the company was owned by the Dubai Govt related entities,
this would have been construed as a default by the Govt of
Dubai
The default by a government would have been very serious.
Many Banks, contractors, suppliers etc could have collapsed if
the dues were not paid.WHY DEFAULT WOULD HAVE BEEN VERY
DANGEROUSThe company was first separated from its parent company
Dubai World.Dubai Government infused nearly Dh 32bn in the company
in lieu of the shares of the company, thus acquiring the major
ownership of the company.Nearly debts worth Dh 25bn has been
restructured.The trade creditors (suppliers) were paid 40% of the
dues in cash.For the Balance 60%, they were given bonds of Dh 5bn
with 10% coupon payment Some trade creditors didnt accept the bonds
and the dues were settled through one time settlement.
TERMS OF RESTRUCTURINGNakheel restructured Dh 8bn of bank debt,
extending loan maturities by five years at Eibor plus 400 basis
points, depending on the loan.Work commenced on the ongoing ten
projects
The company could survive from an almost certain bankruptcy due
to CDR.The ownership transfer into the hands of the Government
boosted the confidence of the investors, creditors and the BanksThe
entire restructuring process lasted for nearly 1.5 years.The
company started the work on the 10 projects were completely
stuckThe real estate sector also recovered, thus boosting the
demand for the units.In 2014, the company paid Dh 2.6bn of the
loans from the Banks, 18 months ahead of schedule.
POST CDR STORY
