US-Iran war jitters push Dubai real estate bonds into distress as refinancing risks rise

Investor concern over credit quality and refinancing risks has pushed bonds issued by two Dubai-based property developers into distressed territory as the war in the Middle East enters its fourth week, Bloomberg reported.Six dollar-denominated property bonds in the region are now trading at distressed levels -- defined as yield spreads of more than 1,000 basis points above the risk-free rate-- accounting for about 15% of Middle East real estate bonds in the dollar market, according to data compiled by Bloomberg. The Islamic notes were issued by entities linked to Binghatti Holding Ltd and Omniyat Holdings Ltd. A 2027 issue from Binghatti is currently the most distressed. While Binghatti’s core business is mid-market housing, the developer has also expanded into luxury projects, including plans for a Mercedes-branded tower and one of the world’s tallest residential buildings. Omniyat operates in the ultra-luxury segment.The downturn marks a sharp reversal for what had been a high-performing sector. At the end of February, the widest-traded bond was priced at less than half the threshold associated with distress. However, Bloomberg reported that the Middle East’s primary bond market has effectively shut since the conflict escalated, limiting refinancing options and increasing pressure on lower-rated issuers.A representative for Binghatti said the company’s construction sites remain fully operational despite geopolitical tensions. “Cancellation rates remain below 1%, consistent with historical norms, and March sales have hit approximately AED 500 million per week, matching pre-crisis levels,” the statement said.Omniyat said it is “in a strong position, fully funded, with substantial contracted revenue providing over four years of revenue visibility,” adding that construction activity continues across all launched sites and there have been no purchase cancellations.Fitch Ratings has placed both developers on watch for possible downgrades, citing geopolitical risks that could weaken demand and increase construction costs. At the same time, the agency noted that both companies entered the current period of volatility with solid balance sheets. Moody’s Ratings separately affirmed Binghatti’s rating, highlighting sufficient liquidity over the next 12 months to meet its February 2027 maturity obligations.Before the conflict, Middle East property firms had increased borrowing to secure land and fund residential projects in Dubai and Abu Dhabi. This has created a significant wall of maturities, with around $8 billion of debt due by 2030.“Dubai real estate names were the most affected by the situation,” Zeina Rizk, co-head of fixed income at Amwal Capital, was quoted as saying. “There are pockets of opportunities appearing but some are waiting for better clarity on the outcome before stepping in.”