Dubai World and Nakheel Sukuk - What did the prospectus say?

Gassner's picture

Dear Readers,

some background on the standstill:

Sukuk prospectus of the related Nakheel entity:

"Risks Relating to the Co-Obligors and the Co-Obligor Group Strategy

The growth strategy of the Co-Obligor Group is based on certain assumptions relating to, inter alia,
economic conditions, market for real estate and demographic conditions in Dubai. [...] This could, for example, have an impact on the rental income, sales proceeds or other income (such as management fees) available to the Co-Obligor Group and the value of its projects, which could affect its ability to make payments under he Transaction Documents."

and the issue of implicit sovereign support was nicely discussed in a blog:

The rational behind is explained by a rating agency here in 2007:

"from its parent also benefited from strong implicit government support."

As there were various risk factors listed in the Nakheel Sukuk prospectus, and none actually giving indication that the Emirate of Dubai would pay for Nakheel in case of insolvency, and the clear statement that Dubai World depends on its subsidiaries; the original rating based on implicit sovereign support seems to be exaggerated and not really wise.

The factor of assumed implicit sovereign support will in future surely not be taken into account with the same confidence as before.

Further: Taking Islamic debt does not prevent from financial difficulties especially if one take as well conventional debts and does not observe the moral imperative of being modest and cautious with indebtment in general.

Best regards,

Michael Saleh Gassner