Dubai Seeks Debt Delay, to Restructure Conglomerate

DUBAI (Reuters) - Dubai will ask creditors of two of its flagship firms for a standstill on debt worth billions of dollars as a first step toward restructuring Dubai World, the conglomerate which spearheaded the emirate's breakneck growth.

The government's announcement on Wednesday, which also said consultants Deloitte had been appointed to help with the restructuring, sent the cost of insuring Dubai's debt against default soaring and bond prices tumbling.

Dubai World has $59 billion of liabilities, its subsidiary Nakheel said in August, a large proportion of Dubai's total debt of $80 billion.

"Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least 30 May 2010," the government said in a statement.

Nakheel, the developer of palm-shaped islands owned by Dubai World, has a $3.5 billion Islamic bond maturing on December 14 and more debt worth 3.6 billion dirhams ($980 million) due on May 13 2010. Limitless, another Dubai World developer, has a $1.2 billion Islamic bond maturing on March 31 next year.

"It's shocking because for the past few months the news coming out has given investors comfort that Dubai would most probably be able to meet its debt obligations and most analysts were of the view that Nakheel's commitments would be met," said Shakeel Sarwar, head of asset management at SICO Investment Bank.

"Abu Dhabi has been supportive of Dubai, but it appears this support is not enough for Dubai to meet its obligations on time."

The cost of insuring Dubai government debt against default using 5-year credit default swaps soared, jumping over 100 basis points to 420.6 from a close of 318 one day earlier. Nakheel's Islamic bond prices fell more than 20 points to 87.

"The market had expected a timely repayment of the $3.5 billion sukuk and spreads had narrowed. This will destroy a lot of confidence," said Eckhart Woertz, economics program manager at Gulf Research Center.