Dubai stunned the world in November 2009 when it announced that it needed to restructure about $24bn of debt owed by the state-owned conglomerate Dubai World.

On 25 March, the government announced its plans. It took four months to put together a proposal to pay off creditors in full, but with repayments delayed by up to eight years.

Most significantly, real estate subsidiary Nakheel’s $1.75bn of outstanding sukuks will be repaid as they fall due in May 2010 and January 2011. Trade creditors will also be repaid in full, with smaller amounts settled immediately.

Financial markets were immediately buoyed by the news; Nakheel bonds rallied, and the Dubai Financial Market advanced by 3.5 per cent in the wake of the announcement.

But it remains to be seen whether or not this optimism is justified.

The proposal is exactly that: the opening salvo in what could be a long period of negotiations between Dubai World, Nakheel, and their 100-odd financial and trade creditors. Reaching a final settlement between the government and its debtors could still be several months away.

Lenders’ responses to the proposal largely depend on the interest rate they can expect to receive on the loans. This has yet to be ironed out.

Larger trade creditors may also baulk at an offer to repay 60 per cent of their claims in the form of a security when they are struggling with their own payment issues. After not being paid for 12 months or more, few will be in a position to hold out even longer for Nakheel to settle its bills.

Dubai World’s offer is a better proposal than many anticipated, but settling the finer details could still prove a sticking point.

The debt crisis is not over.