(From THE WALL STREET JOURNAL) By Cassell Bryan-Low in London and Andrew Critchlow in Dubai Dubai World's promise to repay Nakheel's debt and a separate move by the emirate to set out a legal framework for future talks may not be enough to repair the damage to Dubai's reputation among international investors over the handling of its debt restructuring, investors and observers said.
While Dubai's moves go a long way toward restoring confidence, they aren't "a magical pill that will clear the air and erase the confusion," said Jawad Ali, a partner at law firm King & Spalding in Dubai, which represents at least one Dubai World creditor.
Sheik Ahmed bin Saaed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee, in a statement said that Monday's actions were taken to reassure investors and others that "our government will act at all times in accordance with market principles and internationally accepted business practices."
On Monday, Abu Dhabi agreed to provide Dubai $10 billion to settle some of Dubai's obligations, including a $4.1 billion debt payment related to an Islamic bond, or sukuk, that matured Monday.
Dubai last month announced a six-month debt standstill for Dubai World. The value of the Nakheel bond plunged, falling as low as about 40 cents on the dollar, from about 110 cents before the Nov. 25 announcement. Nakheel is Dubai World's property unit.
Investors who sold the bonds as prices plummeted lost money, but at least some hedge funds and other investors who swooped in to buy the bonds at depressed prices now stand to effectively double their money in some cases.
Among current or recent Nakheel sukuk investors are New York hedge funds QVT Financial LP, D.E. Shaw & Co. and Vicis Capital LLC, as well as money managers BlackRock Inc. and Ashmore Group PLC, based in New York and London, respectively.
Dubai World officials are due to meet bank lenders this month to hammer out the details of the standstill. In the event that a deal with creditors can't be reached, the new law promulgated Monday could provide a legal system of arbitration, in which lenders could, in theory, pursue asset sales or other attempts at getting their money back.
The law establishes a panel of judges who would preside over debt and corporate-restructuring disputes, Dubai said.
The new law is untested, and isn't likely to reassure other bond holders. Still, it may provide some comfort to lenders, who have worried about legal recourse in Dubai in the case of default.
HSBC Holdings PLC and Standard Chartered PLC, both of which are thought to have significant exposure to Dubai, welcomed news of the bailout.
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Sara Schaefer Munoz in London contributed to this article.
(END) Dow Jones Newswires
15-12-09 0359GMT
