Nakheel sukuk sees grey market appetite from hedge funds ahead of expected issue

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Dubai developer Nakheel’s upcoming sukuk expected to be issued imminently has drawn active interest from hedge funds looking to trade the issue, two buysiders told dealReporter. Trade creditors to which the sukuk will be issued by Nakheel in lieu of 60% of invoices owed under its restructuring plan, continue to receive offers from buyers, two creditors said.

Some international hedge funds have already bought the paper on the grey market at 50-60 cents on the dollar and are keen to pick up more once the issue starts trading on Nasdaq Dubai, one of the buysiders said. “Trades have happened in that range. A lot of them have already bought and they are keenly looking at buying more,” the same buysider said.

However, two trade creditors said they have received higher offers for their sukuk allocations. As recently as last week, one of the trade creditors said he had received offers of between 60 and 65 cents on the dollar for his sukuk allocation.

The second trade creditor said that the price offered was even higher. “The offer price range is between 70% and 80% plus. But given the strength of the credit, I think the actual price should be in the range of 90%,” he said.

Both creditors said that they are not entertaining offers and want to see how the market develops when the sukuk is issued. They were not certain when that would be, although Nakheel’s chairman Ali Rashid Ahmed has indicated that the sukuk would be issued before 25 August, according to reports. The company was hosting a press conference today, 24 August, as this article went to press.

According to the buysider, it is difficult to verify the price claims and the offers from buyers could vary depending on how desperate the seller is. However, a price range of 60-65 cents on the dollar is not “out of this world,” he noted.

“You may find stray deals happening at different price ranges. This is very much the nature of the market at the moment,” the buysider said.

Retail investors are also lining up to buy Nakheel paper on the secondary market, the second buysider said. “We have received a decent amount of inquiries from retail clients who love the yield on this,” the same buysider said.

The five-year sukuk has an expected size of AED 5bn (USD 1.36bn) and will carry a 10% coupon, as reported.

When the sukuk lists, the first trade creditor and second buysider expect smaller trade creditors to offload their allocations and prompt a sell-off. “For smaller trade creditors this is their working capital that has been tied up. They have been burned by Nakheel once so they might not want to hang around to get burned twice,” the second buysider said.

However, the second buysider expected the sukuk to recover from an initial dip as retail investors start to pick it up. He expected subdued trading on the Nasdaq Dubai itself and most trading to be done over-the-counter.

Neither trade creditors or buysiders had any idea when the sukuk allocations would be made or when it would list. The first trade creditor said he had received email confirmation from Nakheel that the sukuk documents would be couriered within two days, but the second trade creditor said that he has not received any official notification on issue date.

Reports citing Lootah said that Nakheel has completed the administrative procedures required and the sukuk will be issued before 25 August with the process possibly taking 60-90 days.

Under Nakheel’s USD 10.9bn restructuring plan, the developer has paid trade creditors that have signed its restructuring undertaking 40% of the money owed to them in cash. The remaining 60% will be paid through the sukuk. Repayments to trade creditors totalled AED 4.6bn at the end of March, according to a company statement.

In early July, Nakheel said it has already secured a 100% approval from its bank creditors to restructure USD 800m of bank debt.

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