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SCENARIOS-What might Nakheel 2010 bondholders be offered?


DUBAI, March 21 (Reuters) - The clock is ticking on a proposal to restructure Dubai developer Nakheel's $980 million dirham-denominated Islamic bond maturing May 13 as an indicator of how Dubai will deal with its much larger debts. Nakheel is one of two property arms of state-owned conglomerate Dubai World, which stunned global markets in November when it asked for a delay in repaying $26 billion in debt. IMF estimates suggest that 80 percent of Nakheel's bondholders are local UAE banks. Sources told Reuters that repayment is unlikely but all options remain on the table. Below are possible restructuring scenarios which could be presented to bondholders this week: WIDER DUBAI WORLD RESTRUCTURING Dubai World's restructuring plans include the debt at its two property units, Nakheel and Limitless, so a proposal to bondholders as part of the broader restructuring deal is likely to make reference to the Nakheel 2010 sukuk, bankers said. "Our understanding is that the Nakheel bonds due in May will be part of the Dubai World restructuring," said an Abu Dhabi based banker close to the matter. A DEBT SWAP DEAL Dubai could offer sovereign bonds to investors as part of a debt swap deal, one banking source said. "They could swap for government debt ... have a Dubai government bond.

Dubai government isn't going to fail on its obligations. But it depends on the deal terms," the banker said, adding bondholders could go for the swap for higher returns. A "friendly" debt swap with creditors of Ukraine's state energy company Naftogaz had led to a complete swap of its entire foreign debt for a new 5-year issue, with a coupon payment of 9.5 percent, higher than the previous bond. "They can swap it for another (Nakheel) paper -- maybe for two years," said another banker, adding it would not be too difficult to secure consensus among bondholders but the holders might ask for some sort of guarantee under the new agreement. An extension of maturities is the most likely option, bankers said, but whether bondholders would take a haircut -- and the scale of the haircut -- will be deciding factors on whether the restructuring is seen as friendly or unfriendly. One Gulf-based banker said there is some feeling from investors that taking a combination of a haircut and a maturity extension may be the only way to recoup some of their losses and put the Dubai debacle in the past. WORKING THE BOND INTO A LOAN Another option could be to convert the bond into a bilateral loan, said one banker. If 70 to 80 percent of bondholders are local banks, then a loan option becomes more likely, which could see maturities indirectly stretched for a number of years. However, credit committees may be unwilling to keep or increase exposures to Nakheel or Dubai World. Anything that puts Nakheel in a weaker economic position may be seen by ratings agencies as a distressed restructuring and a default, said one analyst. ADMINISTRATION Unlike Nakheel's 2009 bond, the one maturing in May does not carry a guarantee from its parent Dubai World and hence bondholders have no recourse to Dubai World assets. According to an Abu Dhabi-based source, investors are in very early talks with a law firm in London to examine what their options are, but expect clarity on a restructuring plan from Dubai World before the maturity date. Any claims filed against Nakheel will be heard by the Special Tribunal Related to Dubai World, based at the Dubai International Financial Centre. No claims have yet been filed and a legal source said "we are some way off the point at which Dubai World would be brought into that tribunal." FULL REPAYMENT Nakheel staved off default of its $4.1 billion sukuk in December after Abu Dhabi stepped in with a last minute lifeline to prevent a bondholder revolt.

It's unlikely that bondholders will be pleasantly surprised this time round with full repayment but expecting the unexpected has become a fad in the region. Sources familiar with the matter have however said a full repayment is "incredibly unlikely." (Reporting by Rachna Uppal and Seen Pasha; Additional reporting by Stanley Carvalho; Editing by Thomas Atkins, Dinesh Nair and Hans Peters) Keywords: NAKHEEL SCENARIOS (rachna.uppal@thomsonreuters.com; +971 4 391 8301; Reuters Messaging: rachna.uppal.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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