Nakheel to pay a fraction of debts

Cash-strapped Dubai developer Nakheel is to offer consultants and contractors just 65% of the money it owes them, NCE has learnt. Nakheel is one of the most high-profile developer in Dubai, with the government-backed firm responsible for the famous palm-shaped islands and ‘World’ and ‘Universe’ island developments.

But last month NCE revealed that the developer was close to bankruptcy, with analysts estimating that it owed consultants up to £200M. Last week the Dubai government bailed it out with cash from a successful bond issue worth £13.3bn (US$20bn), with neighbouring Abu Dhabi buying half the offering. Despite this, NCE understands that consultants will struggle to get paid in full for work done.

“One of the offers on the table is for firms to get 65% of their consultancy fees, with the understanding that in doing so, they waive their legal rights [to further payment], ” Association for Consultancy and Engineering chief executive Nelson Ogunshakin told NCE. “We also believe UK firms may be further down the pecking order, and indigenous suppliers are given a preference,” he said, adding that the money owed to global consultants will top £400M. The ACE has approached business secretary lord Mandelson to step in on behalf of British consultants.

“We want to take action where appropriate, but the UK is one of the biggest players in Dubai, and this relationship must not be damaged,” he said. He added that Nakheel may not be the only Dubai firm to be in trouble. “Nakheel’s troubles are visible, but there are other investment vehicles trying to play the same game,” he said. Nakheel refused to comment on the details of payments to consultants. “We have benefited from an injection of capital from the bond issue. The value and other details relating to this funding remain confidential.”

Nakheel’s problems stem from difficulties in securing pre-construction sales on property space. Its cashflow dried-up when its housing market collapsed in September 2008, leaving no money to pay consultants or contractors. Consultants had previously warned that allowing Nakheel to collapse would have damaged the reputation of the Emirate. Numerous consultants had reported cash collection issues in the Emirate, although it is unclear how much is owed to them by Nakheel.

Mouchel reported it was chasing £23M in Dubai, “the vast majority being due from the local state backed development companies”. Atkins is owed £25M in the whole Middle East market, Scott Wilson between £4M and £6M and WSP an undisclosed sum.