Sunday, December 6, 2009

A little documentation/foreign ownership humor


Not having anything better to do during the first snow in NYC yesterday afternoon I started looking at the Nakheel Sukuk documentation again to see if I could get my hands around the chances of the Dubai World Guarantee being exercised. I figured I had better do some homework on the Trust Assets of the sukuk given all this talk in the press about whether the bondholders can take title to assets in Dubai.

So I had a look and the Sukuk Trust Assets are plots in Dubai Waterfront South and on the Crescent (artist rendition above.) Dubai Waterfront South is the part of the Dubai Waterfront development on the opposite side of Sheikh Zayed Road from the coast. That is to say that today they are empty desert and are Waterfront in name only.

The Crescent is a proposed Island wrapping itself around the Palm Jebel Ali which when complete will either be larger than Manhattan or more populous than Hong Kong or both depending on which Dubai website you are reading. Wait a minute, proposed? Yep, proposed. I can't seem to find anything on how far along the project is and I can't find it on any satellite imagery.

Thus there's no problem with litigating over whether or not non-GCC nationals are able to take possession of that particular Trust Asset because IT DOES NOT EXIST.

This isn't even the funny part. Have a look for yourself, scroll down to the bottom of the offering circular and find Appendix 2. Then look at what valuation Jones Lang Lasalle put on that strip of desert and as yet unbuilt crescent shaped island. Now that's funny, and it gives you a sense of the mindset in Dubai in August of 2006 when this was put together.

Now these assets were put into the Trust in order to make the bond Islamic, I'm sure that the bondholders never intended to take control of these assets. They intended to be paid out of Nakheel cash flow and in the (then) unlikely event that Nakheel could not pay, they would exercise their Dubai World guarantee, something which seems a virtual certainty at this point.

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