Dubai developer Nakheel nears $4.6bn debt restructuring to fund expansion

Dubai developer Nakheel is nearing a debt restructuring deal worth $4.6bn, as the group behind landmarks such as Palm Jumeirah accelerates plans to tap into surging demand for property in the Gulf emirate.

The government-owned group has been negotiating with a group of lenders, including local banks Emirates NBD, Mashreq and Dubai Islamic Bank, according to people familiar with the matter. The negotiations are set to refinance 11bn UAE dirhams ($3bn) of existing debt and to raise Dh6bn ($1.63bn) to kickstart development of Palm Jebel Ali, a stalled seafront project.

Demand for coastal properties has risen in recent years thanks to Dubai’s handling of the coronavirus pandemic, with the government keeping the economy relatively open. Russians have also settled in the United Arab Emirates as a haven from the war in Ukraine.

As the wealthy once again flock to Dubai, high energy prices are fuelling a broader boom in the oil-rich Gulf states. Financial groups are moving to the emirate as a base to service the region, where excess revenues are cushioning the blow of inflation felt more acutely elsewhere.

“Nakheel is paying a lower spread and getting more money for new projects, including Palm Jebel Ali,” said one banker on the deal.

Nakheel’s Palm Jumeirah, the man-made island synonymous with Dubai glamour, is one of the most expensive districts in the city, registering the highest average sales rate in August — but there is barely any space left for new developments.

Nakheel plans to build 1,700 villas and 6,000 apartments on Palm Jebel Ali, which is one and a half times bigger than Palm Jumeirah, people aware of the matter said.

Average sales prices in the year to August were up 9 per cent — with apartments up 8 per cent and villas 16 per cent, CBRE said in a report earlier this month. Valuations nonetheless remain below the last peak in 2014, after which lower oil prices triggered a slump in regional economies.

In August, transaction volumes increased 70 per cent compared with the month in 2021. For the year to date, volumes have reached their highest level since 2009, when a previous bubble burst during the global financial crisis.

Nakheel was at the heart of Dubai’s debt calamity that year, when the emirate had to turn to neighbouring Abu Dhabi for $20bn in bailout loans to ward off a damaging bond default.

But analysts warn that this property boom may also be running out of steam.

Taimur Khan, head of research at CBRE in Dubai, said average rents were registering almost record growth, rising nearly a quarter in the year to August. However, with sales growth already receding, “we may see the rental growth rate start to moderate in the not too distant future”, he said.