Dubai Property Group Close To Debt Deal

Limitless , the property arm of Dubai state-owned conglomerate Dubai World, is nearing a deal to restructure $1.2bn in debt as it pins its hopes of a turnround on its international projects.

While Limitless suffered as a result of the Dubai property collapse, some of its most ambitious developments are outside of the Gulf emirate. As lawyers hammer out details of its plan to delay debt repayments, relaunching its overseas ventures is now central to the company’s prospects of meeting new targets.

Of particular importance is Al Wasl, a $12bn suburban development on the outskirts of Riyadh, the Saudi capital, which stalled during the financial crisis.

Financial inflows from the development – a joint venture with the newly appointed Saudi Crown Prince Salman bin Abdulaziz Al Saud – are forecast to account for more than half of Limitless revenues between 2011 and 2016, according to a July 2011 copy of the business plan seen by the Financial Times.

“The completion of the Saudi project is an integral part of the restructuring,” says Ahmad Alanani, a senior executive officer at Exotix, a frontier markets investment bank in Dubai. “The dynamics in the Saudi real estate market are exceptionally favourable so I would imagine that a lot hinges on this development in terms of future cash flows and valuations.”

Limitless said in a statement that the Saudi development “will remain a priority project” under the restructuring agreement.

The company has abandoned eye-catching schemes it launched during the boom, such as the Arabian Canal, a 75km waterway through the Dubai desert, but has completed an office complex in Dubai’s Jebel Ali port and industrial zone, more than 70 per cent of which is leased out.

People close to the debt negotiations say both sides are finalising a deal by which the developer will agree to repay the loan principal over three equal annual payments between 2014 and 2016 from sales and asset disposals. Lenders will receive interest at about 175 basis points over London’s benchmark rate – the level they were receiving on the original loan.

A business plan presented to creditors last year forecast in the most optimistic scenario that the company could generate cash available to repay creditors from $69m in 2012 to $1.8bn in 2016. Last July, trade creditors were owed $338m with a potential for further claims of $118m.

For that scenario to play out, the company will need strong sales at its Saudi development.

Good news last week was passage of the kingdom’s long-awaited mortgage law, which is expected to boost the property market as more buyers gain access to home financing. The Saudi government says the country needs to build 200,000 homes a year to meet the demands of the growing population.

Some of the company’s other international projects are edging forward. Limitless and joint-venture partner RDI Group this year launched sales at the mixed-used Zagorodny Kvartal project in Russia, which includes 700 apartments and 46 town houses, on the edge of Moscow. Financing worth Dh120m ($32.7m) has been secured for the project, where construction began late last year, Limitless said.

Similarly, the company last week secured financing for Halong Star, its Vietnamese development, with construction expected by the end of the year.

Its one-time sister company Nakheel, developer of Dubai’s man-made islands, has come under government ownership after receiving a $9bn injection as part of Dubai World’s $25bn restructuring deal signed last year.

Limitless – which will not receive a similar financial lifeline from the government – is expected to follow its sister company into direct state ownership once its restructuring deal is signed in the coming months.

Analysts say its restructuring has taken longer because the developer was convinced it could strike a deal with creditors separate from the complicated Dubai World creditor negotiations and without any government guarantees.

Mr Alanani of Exotix says a framework agreement has been reached and should be finalised after documentation is drawn up by September, with no “surprises” expected.

Zawya.