Bloomberg: DIFC Investments’ Sukuk Rally ‘Gone Too Far’

Aug. 12 (Bloomberg) -- The two-month rally in DIFC Investments LLC’s Islamic bonds is ending on concern the Dubai state-controlled developer will struggle to meet payments on more than $3 billion of debt.

The notes that comply with Shariah law dropped for a third day yesterday to 79.15 cents on the dollar after surging almost 10 percent since the end of May, according to data compiled by Bloomberg. The securities need to fall at least 4 percent to 76 cents or below before they are attractive to buy, according to Zafar Nazim, a JPMorgan Chase & Co. analyst in London.

DIFC Investments, the owner of assets in the Dubai International Financial Centre, a tax-free zone, had its credit rating cut one level by Moody’s Investors Service on July 8 and its outlook reduced to negative this week by Standard & Poor’s, which cited about $3.1 billion of debt and “uncertainties” over the company’s plans to sell $1 billion of assets.

“The rally we have seen in DIFCI sukuk and other Dubai names has gone too far,” Abdul Kadir Hussain, chief executive officer in Dubai at Mashreq Capital DIFC Ltd., which manages $2 billion of mainly Persian Gulf assets, said in an interview on Aug. 10. “The source of that sukuk repayment is going to be asset sales. So, as much as there is uncertainty in their asset- sale plan, obviously there will be concern on their sukuk repayment capability.”

DIFC Investments posted a loss in 2009 after an $842.5 million profit in 2008 as it wrote down the value of properties. Real-estate prices in Dubai, the Persian Gulf’s financial hub, retreated more than 50 percent from their peak in 2008 as the global credit crisis led to a cut in mortgage lending and pushed companies to slow expansion, according to estimates from Colliers International.