The cost of insuring five-year Dubai debt against default jumped to its highest level since March yesterday as concerns intensified over the debt restructuring of state-owned conglomerate Dubai World.
Nervousness over the fate of Dubai World debt grew after it was reported the business is mulling a two-part deal, including one that may repay lenders 60 per cent over seven years.
Dubai denied the report on Sunday.
Investors, already spooked by a lack of information on the company’s plans to repay the debt, reacted with dismay to the reported proposal.
The five-year credit default swaps rose as high as 651 basis points, above the high reached after the Dubai government announced a standstill on debt held by Dubai World in November.
Dubai World is in talks with banks on the debt delay – about $22bn (£14bn) linked to its main property units Nakheel and Limitless World – but has yet to present a formal proposal.
It staved off default on a $4.1bn Islamic bond linked to Nakheel, after a last minute bailout from Abu Dhabi in December. The price of Nakheel’s Islamic bond maturing in January 2011 fell 3.5 points to 50, according to Reuters data.
UK business secretary Lord Mandelson said over the weekend that Dubai’s handling of the crisis at its flagship Dubai World company will affect its ability to attract future investment.