A series of announcements today from the Dubai government and its most heavily indebted conglomerates—Dubai World and Nakheel—were meant to provide clarity on the debt “standstill” announced by the companies late last year. The state-owned firms froze repayments on some US$24bn in debt, including US$14bn owed to bondholders and banks.
The gist of the deal is that the government will allocate US$9.5bn in fresh funds to the companies and convert previous loans into equity (in effect a write-off). Creditors will be asked to accept full principal repayments via new securities with five- and eight-year maturities. Assuming support for the proposals, Nakheel’s bonds due in 2010 and 2011 will be paid according to schedule, the developer of the emirate’s palm-shaped islands said.
Credit markets reacted enthusiastically to the proposals, with the price of Nakheel’s 2011 bond soaring today. Of course, creditors have had their hopes dashed before, judging by the incredibly volatile trade in this and related securities during previous rescue attempts. Can they finally put their concerns to rest?