July 2009 DUBAI - Nakheel Nakheel , the Dubai-based property developer said on Monday that it plans to revise the payment terms of its $750 million Sharia-compliant bond, or sukuk, which matures in 2011.

Under the revised terms, Nakheel Nakheel would decrease the coupon payment due later this month and increase the final amount payable on the bond redemption date, according to a notice sent to investors by Deutsche Bank AG, the bond's principal paying agent. The next payment for the sukuk is due July 16 and the last is January 16, 2011. Investors may receive the next coupon payment on July 16 after accepting the new pricing formula.

"If the proposed amendment becomes effective, it is expected that it should result in an increase in the amount of the final distribution amount payable to certificate holders on the redemption date," the notice said.

"The difference is minimal and favorable to sukuk holders," Nakheel Nakheel said in an e-mailed statement to Dow Jones.

Nakheel Nakheel said that the consent of sukuk holders was not required for the amendment, but that the "transaction administrator wished that sukuk holders be notified ahead of formal approval."

The developer of off-shore islands such as Palm Jumeirah and The World has been severely affected due to the global economic crisis and a sharp decline of real estate prices in Dubai. The company has two more outstanding sukuks -- a $3.5 billion issue which matures in December 2009 and a Dh3.6 billion sukuk which matures in May 2010.

"This clearly highlights that Nakheel Nakheel is addressing its funding structure. As long as bond holders do not lose out and agree to terms on a voluntary basis, this can be seen as a positive move," said Philipp Lotter, senior vice president at Moody's Investors Service in the Middle East.

"Questions remain, however, what the company's plans are regarding its more immediate bond maturity in December this year," he said.

Even though the company has not announced any plans for its sukuk maturing in December, the issue of how Nakheel Nakheel will handle redemption has been a matter of intense speculation. Some analysts expect Nakheel Nakheel to redeem fully by tapping into the Government of Dubai's planned second tranche of $20 billion bond issue. The first tranche of the $10 billon was fully subscribed by the UAE Central Bank. Some other analysts are speculating that Nakheel Nakheel might offer longer dated bond along with some cash component instead of a full redemption.

According to Mohieddine Kronfol, managing director at Dubai-based Algebra Capital and holder of Nakheel Nakheel sukuk, the wording in the notice sent to investors on Monday introduces the possibility that the company paying back one of its bonds earlier than originally planned.

"It also confirms the market speculation that a restructuring is being seriously contemplated, and without additional information from the company this notice will further fuel speculation," he told Bloomberg.

By Staff Reporter

© Khaleej Times 2009 omar 1.1:zy