June 10, 2020 / 12:57 PM / a month ago

Dubai merger boosts state-linked property firm's debt - sources

DUBAI, June 10 (Reuters) - Islamic bonds issued by Dubai’s Meraas Holding, a state-linked property developer, have shot up in value after the government announced the company would come under the umbrella of the ruler of Dubai’s investment vehicle Dubai Holding.

The bonds, or sukuk, jumped on Tuesday - when the incorporation into Dubai Holding was announced - to close at 92 cents on the dollar from 84.2 cents the previous day, and were at around 94 cents on Wednesday, two market sources said.

The sukuk, which have seen some volatility over the past year and a half, fell sharply in value in March as the coronavirus pandemic and a slump in oil prices hit an already struggling real estate sector in Dubai.

But market sources said the risk of a potential default on the debt would decrease after the change in ownership.

“Dubai Holding obviously has better cash flows from its investments in TECOM, Jumeirah and other companies, so if needs arise ... they can support Meraas,” a fixed income strategist said, adding Dubai Holding could raise debt at cheaper rates.

“Dubai Holding doesn’t really publish financials so we don’t know for sure. But there’s probably a benefit to the combination being bigger,” a fund manager said.

Three fund managers also said a change of control clause in the sukuk documentation, seen by Reuters, may have been partially responsible for their rise in value, as it might allow sukuk holders to sell the notes back to Meraas at par value.

However, they added it was unlikely the change of control clause would apply, as the firm remains ultimately under the control of Dubai royalty.

Meraas and Dubai Holding did not immediately respond to requests for comment.

Dubai Holding is the investment vehicle of the emirate’s ruler Sheikh Mohammed bin Rashid al-Maktoum. It holds a big portfolio of brands in the property and hospitality sectors, including the Jumeirah Group, Dubai Properties and TECOM Group. (Additional reporting by Davide Barbuscia; Editing by Mark Potter)

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