By Haris Anwar and Dana El Baltaji March 9 (Bloomberg) — Nakheel PJSC bonds, part of parent Dubai World’s planned $26 billion debt restructuring, climbed the most in two months after JPMorgan Chase & Co. said creditors may get paid face value. The developer’s $750 million sukuk, or Islamic bond, added 5 cents, the most since Jan. 6, to 56.25 cents on the dollar at 4:31 p.m. in Dubai, prices compiled by Bloomberg show. The bond due in January 2011 has climbed from a low of 46.5 cents on Feb. 17 and traded as high as 85.5 cents on Nov. 25, when Dubai World said it may delay debt payments. Nakheel’s debt “may not warrant haircuts, and restructuring may only involve long maturity extensions,” JPMorgan said in a report. United Arab Emirates Economy Minister Sultan bin Saeed al-Mansouri said today he’s confident state- owned holding Dubai World will reach an accord with creditors, while Finance Minister Sheikh Hamdan Bin Rashid Al Maktoum said the seven-emirate U.A.E. stands by Dubai. The bank’s “report is very positive and it gives some clarity,” Louis Gargour , the London-based chief investment officer at hedge fund LNG Capital LLP and a holder of Nakheel debt, said in an interview. “You might have a situation where you have sovereign assistance in paying off at maturities.” Dubai World, one of the emirate’s three main state-owned business groups, said Nov. 25 it would seek to delay repaying debt until at least May 30. The announcement sparked the biggest plunge in developing-nation stocks and the largest increase in emerging-market bond yields over U.S. Treasuries in four weeks, while the cost to protect against a default by Dubai doubled. Neutral Rating Dubai World may propose to creditors excluding Nakheel holders a 20 percent cut in face value, a 10-year extension on maturities and a government repayment guarantee, the bank said. A spokesman for Dubai World declined to comment. JPMorgan maintained its neutral rating on Nakheel’s bonds, citing the “unpredictable nature” of the restructuring and “the small probability that sukuks get paid at par upon stated maturity.” The debt “would also have some potential upside if the government guarantees principal repayment under a restructuring plan that involved little or no haircut,” Zafar Nazim , a London-based analyst at the bank, wrote in the report dated yesterday. Dubai avoided a default in December on $4.1 billion of payments due for Nakheel’s 2009 bond after Abu Dhabi and its banks provided $10 billion of loans. ‘Precedent’ “There was a precedent set in 2009 when Nakheel’s debt was settled,” said Jamil Hallak , head of credit trading at Standard Chartered Plc in Dubai. ’’Investors assume that the same will happen in 2010 and 2011, although it’s less likely that they redeem it in full. I think the default is not a scenario that I expect, and that a rollover is more likely.” Dubai, the second-biggest of seven emirates that make up the U.A.E., and its state-owned companies racked up $109.3 billion of debt during a real-estate boom that ended in 2008, according to International Monetary Fund estimates, as the sheikhdom sought to transform into a tourism, trade and financial services hub. The seizure of debt markets after the onset of the global credit crisis led to a 50 percent decline in property prices in the city and hampered the ability of Dubai- based companies to raise new loans to refinance maturing debt. Swap Option All restructuring options are being considered, including swapping Nakheel’s $1.73 billion bonds with new securities, a person close to the Dubai government said on Feb. 17. Nakheel, a developer of palm-shaped islands, has two outstanding Islamic bonds, a 3.6 billion-dirham ($980 million) floating-rate note due May 13 and a 2.75 percent, $750 million sukuk maturing in January 2011. Moody’s Investors Service estimated last month that U.A.E. banks hold about $15 billion of Dubai World debt. ’’Dubai’s domestic banks’ exposure to Dubai World would be an argument that goes against the government demanding steep haircuts,’’ New York-based JPMorgan said in the report. “Assuming two-thirds or $10 billion of this amount relates to Dubai’s banks, a 40 percent haircut implies provisioning of $4 billion,” the bank said. To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net ;

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Nakheel Bonds Advance as JPMorgan Says Creditors May Be Paid at Face Value

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