Anka A Sukuk Ltd (Nakheel)

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1. Anita Yadav Tel : +971 4 230 7630 NAKHL 10 08/25/16 (Not Rated) 05 July 2015 Issued in August 2011, NAKHL 16s are currently trading at Dhs 106.95, reflecting YTW of 3.67% and Z-spread of 252 bps. For an unrated name from real estate sector and troubled history, NAKHL has come a long way in spread tightening, mainly as a result of good operating performance and ongoing repayment of debt. NAKHL 10 08/25/16 The price has gradually been falling in the recent past as a result of pull-to-par effect. This trend of falling capital price is likely to continue until redemption at par in August next year, however the bonds appear attractive on relative value basis with yield of over 3.6% on an indirectly government owned security. Background  Nakheel is a real estate developer in Dubai. Its three flagship properties are the man-made palm tree shaped islands – Palm Jumeirah, Palm Deira and Palm Jebel Ali. It also developed Dragon Mart and Ibn Battuta malls.  As part of the debt restructuring in Aug 2011, Nakheel ceased to be owned by Dubai World and instead is currently 100% owned by the Dubai Government via Dubai Financial Stability Fund. It received $7.5 billion from DFSF in Aug 2011 as part of total $8.6bn government funded bail out.  The law relating to escrow accounts for each development prohibits Nakheel from using cash from one project to fund deficit of another project, if any. Therefore each project needs to be profitable and well managed. Nakheel’s business is concentrated in Dubai with no material international exposure.  Nakheel’s operating performance has improved materially over the last few years. In 2014, the company reported a 43% increase in net profit to Aed 3.68 billion, attributed by handing over of 1117 units to customers in Al Furjan, Jumierah Park, Jumeirah heights etc. Net profit increased despite a 25% drop in revenue to 7 billion (vs 9.3bn in 2013) dhirams due to higher margins and write back of 460 million dhirams of previously provisioned Golden Mile project at Pal Jumeirah. It paid Aed 7.9 billion of bank debt ahead of schedule. Nakheel expects 2015 revenue to be in line with 2014s.  Currently rental revenue is only Dhs 1.3 billion which Nakheel expects to rise to Dhs 7.5 billion by 2017 as iit completes retails and hospitality projects. By late 2017, its leasing portfolio will be 30,000 units (currently 17000 units) and retail area would be 10 million sqft.  Nakheel expects to award around AED7 billion worth of construction contracts in 2015. Projects include Deira Islands Mall, The Circle Mall and Al Khail Avenue at Jumeirah Village, The Palm Tower, Ibn Battuta expansion and several other residential, retail projects and hospitality projects across Dubai. Issuer: Anka A Sukuk Ltd (Nakheel) Maturity: 25-Aug-16 Coupon: 10 Size: Dhs 4.39 billion Rating: NR Risk Domicile: UAE Payment Rank: Sr Unsecured Structure: Sukuk Al Ijara Covenants: Change of control Negative pledge and limit indebtness Cross default NAKHL 16s - YTW Source: Bloomberg, Emirates NBD Research Page 1
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