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|21 January, 2019

Dubai property developers put bond plans on hold- sources

Dubai's Emaar Properties and state-owned developer Nakheel have put on hold plans to issue U.S. dollar-denominated bonds

The corporate logo of EMAAR is seen in Dubai, United Arab Emirates, December 28, 2018.

The corporate logo of EMAAR is seen in Dubai, United Arab Emirates, December 28, 2018.

REUTERS/ Hamad I Mohammed

DUBAI-Dubai's Emaar Properties and state-owned developer Nakheel have put plans to issue U.S. dollar-denominated bonds on hold, Emaar and sources familiar with the bond issues said.

The firms had planned dollar-denominated sukuk, or Islamic bonds, and would have had to pay a yield premium to attract enough investors due to concerns about Dubai's property price slide and emerging market volatility, three sources said.

Emaar, developer of the world’s tallest building Burj Khalifa, said it had put on hold a planned bond issue, blaming rising interest rates, while Nakheel declined to comment.

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Dubai property prices have fallen since a mid-2014 peak, hurt by weaker oil prices and muted sales, although the slide has not come close to the more than 50 percent drop in 2009-2010, which pushed Dubai close to a debt default.

Residential prices fell 6 to 10 percent in 2018 and are expected to drop 5 to 10 percent more this year, Savills says.

This has hit earnings, with a 29 percent fall in Emaar's third quarter last year and a 68 percent drop at Dubai's second-largest listed developer DAMAC. 

The financial sources said Emaar and Nakheel hired banks a few months ago to issue Islamic bonds but shelved the plans.

"The bond was considered more than a year ago and was put on hold due to increasing interest rates. The decision was not based on market conditions," a spokesperson for Emaar, which is partly owned by Dubai's government, said.

YIELDS RISE

Nakheel, developer of palm shaped islands off Dubai, was one of the worst hit by Dubai's 2009-2010 real estate crash, forcing it into a massive debt restructuring. It has not issued public debt since it nearly defaulted in 2009.

The market downturn has put pressure on property companies' existing bonds, which investors use to establish the price of new debt sales. Yields of bonds issued by Dubai developers have risen sharply in recent months, underperforming other sectors.

Yields on DAMAC's $500 million sukuk due in 2022 and $400 million Islamic paper due in 2023 have spiked since early November by more than 200 basis points (bps) and 150 bps respectively.

BofA Merrill Lynch last week forecast weaker booked sales and gross margin for DAMAC, saying it was likely to be pressured by the property market and upcoming debt and land payments.

Amr Aboushaban, DAMAC's head of investor relations, said it is comfortable it will meet its debt commitments when they are due and continues to have strong liquidity.

"Market conditions are expected to improve in the next two years, ahead of our 2022 and 2023 maturities and we remain conservative from a leverage perspective," he told Reuters.

(Reporting by Davide Barbuscia Additional reporting by Alexander Cornwell Editing by Ghaida Ghantous and Edmund Blair) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))

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