Dubai property developers put bond plans on hold -sources

The corporate logo of EMAAR is seen in Dubai, United Arab Emirates, December 28, 2018. (Reuters)
Updated 21 January 2019
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Dubai property developers put bond plans on hold -sources

  • Sources say firms had planned Islamic bonds
  • Emaar says bond on hold due to rising interest rates

DUBAI: Dubai’s Emaar Properties and state-owned developer Nakheel have put plans to issue US 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.
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.


Brent eases from 2019 highs as markets await US-China trade talks outcome

Updated 9 min 33 sec ago
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Brent eases from 2019 highs as markets await US-China trade talks outcome

  • The slight downward correction was driven by concerns about the health of the global economy this year
  • Bank of America Merrill Lynch expects Brent prices to average between $50 and $70 per barrel
SINGAPORE: Brent crude oil prices eased away from 2019 highs on Tuesday on caution that economic growth may dent fuel demand this year, although supply cuts led by OPEC still meant markets were relatively tight.
International Brent crude oil futures were at $66.08 per barrel at 0220 GMT, down 42 cents, or 0.6 percent from their last close, but still not far off the 2019 high of $66.83 a barrel hit in the previous session.
US West Texas Intermediate (WTI) crude futures were at $55.71 per barrel. While that was up 12 cents from their last settlement, it was below the $56.33 2019 high from the previous day.
Traders said the slight downward correction was driven by concerns about the health of the global economy this year.
Bank of America Merrill Lynch said in a note that the Sino-American trade dispute was hurting economic growth globally.
“Addressing global trade tensions is key for improving the economic outlook,” it said in a note.
China’s vice premier and chief trade negotiator, Liu He, and US Trade Representative Robert Lighthizer lead a round of trade talks this week in Washington.
Considering the economic outlook and supply and demand balances, the bank said it expects Brent prices to average between $50 and $70 per barrel, “anchored around $60.”
Despite some caution around trade, global oil markets remain relatively tight because of supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), with top crude exporter Saudi Arabia cutting the most.
Saudi seaborne crude exports fell in the first half of February, with departures standing at 6.204 million barrels per day (bpd), a 1.341 million bpd decline on the previous month and 0.91 million bpd decline on the year, data intelligence firm Kpler said.
Further providing oil markets with support are US sanctions against petroleum exporters Iran and Venezuela.
Venezuela is a major crude supplier to US refineries while Iran is a key exporter to major demand centers in Asia, especially China and India.