Dubai World's restructuring of 'only $26bn' debt calms investor fears

Dubai World had begun "constructive" talks with banks to restructure $26 billion (R192bn) of debt, including liabilities owed by units Nakheel World and Limitless World, the state-owned holding company said yesterday.

Debt from subsidiaries such as Infinity World Holding, Istithmar World and Ports & Free Zone World would be excluded from the negotiations because those companies "are on a stable financial footing", said Dubai World.

The company is seeking to delay payments on less than half its $59bn of obligations, damping concern that a potential default might set back the global financial system's recovery from the credit crisis.

Stocks erased losses in the US after the Dubai World statement, sending the Standard & Poor's 500 index up 0.4 percent.

"Now that they're saying $26bn, it reduces the panic that built up in the last few days," said Nick Chamie at RBC Capital Markets. "This is positive. The market was feeding on its own concern and there were talks of $60bn debt that would need to be restructured."

The cost of protecting against a default by Dubai fell for the first time in a week. The country's credit-default swaps declined 75 basis points to 571 basis points, according to prices from CMA Datavision. Default swaps, which fall as the perception of credit quality improves, for Abu Dhabi narrowed 34 basis points to 144 and contracts linked to DP World dropped 109 basis points to 631.