On 25 March, the government of Dubai finally broke silence on how it plans to restructure the $23.5bn of debt owed by its Dubai World conglomerate to more than 100 international creditors.

Exactly four months after requesting a six-month standstill on debt repayments, the government announced that it planned to commit $9.5bn of new funds to Dubai World and property development subsidiary Nakheel, which would receive $8bn of that amount.

The plan involves repaying Nakheel’s $1.75bn of outstanding sukuks in full as they fall due in May 2010 and January 2011, but with repayments delayed by five to eight years.

The most stark omission [in the proposals] is that no details have been provided on interest payments

A positive aspect of the proposal is that about half of Nakheel’s smaller trade creditors, owed up to $136,121 each, will be repaid in full. 

Financial markets reacted positively to the news. Nakheel bonds rallied, the local Dubai Financial Market advanced by 4.3 per cent and the price of insuring Dubai’s credit against default tightened by 45-60 basis points (bp) in the five-year credit default swaps market to about 360bp. But many questions remain unanswered. It is not clear if trade creditors who have accepted severe cuts to payments on outstanding bills will be able to renegotiate the terms under the new proposal, or whether those who have gone out of business will be able to claim.  

Of the $9.5bn in new funds, $3.8bn will come from undisclosed ‘internal Dubai government resources’– more clarity is needed on what these are.

The most stark omission is that no details have been provided on interest payments, without which it is impossible for creditors to decide how attractive the new loans are to them. Creditors will want the finer details settled before they agree to them and this will take at least a couple more months.