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Dubai: State-owned Nakheel, developer of three palm-frond shaped islands off Dubai's coast, sold $750 million of Islamic bonds - a portion of which are convertible to shares - giving a coupon of 5.5 per cent, a banker said.
The funds will be used to finance general expenses, Nakheel said in a statement earlier on Tuesday.
Nakheel is developing $30 billion of projects in the emirate, which is at the forefront of a real estate boom in the world's biggest oil exporting region.
The bonds - also know as sukuk - give investors the right to buy shares in any initial public offering by Nakheel or any of its units, the company said in the statement.
JP Morgan Chase & Co arranged the bond sale. The banker did not want to be identified.
Subscription right
"Under certain conditions, investors will have the right to subscribe to a certain amount of shares in any future Qualifying Public Offering of any entity of the Nakheel Group, undertaken prior to the redemption of the sukuk," it said.
"Additional yield will be paid on redemption of the sukuk if either no QPO occurs or if the size of QPOs is below a certain threshold," it said.
Nakheel sold $3.52 billion of Islamic bonds last December, the biggest ever such sale, offering investors the right to buy shares at a discount in any in Nakheel IPO.
Investors offered about $6 billion for the bonds, which mature in December 2009, arranger Dubai Islamic Bank said at the time.
The bonds were priced at 120 basis points more than the London Interbank Offered Rate.
If there is no IPO, Nakheel will have to increase the return on the bonds by as much as two percentage points.
Sukuk are typically backed by physical assets that pay a dividend or rent to bondholders rather than interest, which Islam bans as usury.
Going public
Nakheel chief financial officer Kar Tung Quek last month had said earlier that the developer could go public as early as 2009.
"We have been looking at it for a long time," Quek was quoted as saying.
"If we go public, it will be by the end of 2009 or early in 2010."
Dubai World, Nakheel's parent company, plans to combine Nakheel with sister company Istithmar Real Estate to create a $52 billion property company, Middle East Economic Digest reported last month, without saying how it got the information.
Dubai Ports, Customs & Freezone Corp was the first Dubai state-owned company to sell bonds that were convertible to shares, in this case in DP World, the world's fourth-largest container port handler.
DP World last month raised almost $5 billion in the Middle East's biggest initial public offering.
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