Dubai's assets may be virtually untouchable, so any holders of bonds issued by flagship property firm Nakheel that take legal action to recover potential losses could be wasting their time, lawyers said on Thursday.

Government-owned conglomerate Dubai World wants time to restructure $26 billion of debt it and its main property units, Nakheel and Limitless World, owe and has asked creditors for a standstill on bond repayments until May 2010.

About $6 billion of that relates to bonds issued by Nakheel including a $3.5 billion Islamic bond that matures on December 14.

Creditors, including the likes of Standard Chartered, HSBC and Lloyds, have chosen lawyers and auditors to represent them and have yet to respond to the request for restructuring.

Rejection would tip the Islamic bond, or sukuk, into default, opening the door for legal proceedings.

Creditors could sue in English courts as well as in the United Arab Emirates, a seven-member federation that includes Dubai.

But even if they win and a court orders assets to be seized, the sukuk agreement and the UAE's foreign ownership laws cast doubt on whether such a verdict could be enforced, lawyers say.

The sukuk prospectus alone throws up several questions about enforceability.

'What the article (in the prospectus) is basically saying is where the agreement says English law is applicable, it is not certain that the Dubai courts would actually apply English law as opposed to local law,' said Essa Jawahery, a lawyer at Elham Ali Hassan & Associates in Manama.

'The second thing it is saying is ... once the English court gives the judgement, bringing it to Dubai to enforce it might be difficult because it's not possible to take execution measures on property owned by the government or the ruling family.'

The UAE’s economy minister, Sultan bin Saeed al-Mansouri, said on Wednesday it is only a matter of time before Dubai World restructures its debt and meets its obligations, the official WAM news agency said.

But the troubled conglomerate's creditors are gearing up for action.

Key lenders have set up a committee and picked their legal and financial representatives

Dubai's Emirates NBD -- one of two UAE banks on the creditor committee along with four UK banks -- is the biggest creditor with outstanding loans of $3 billion, the Financial Times reported on Thursday, citing bankers and their advisers.

The panel will meet Dubai World for the first time next week, just days before the first Nakheel bond, which is  guaranteed by Dubai World, matures on December 14.

'Reasons to get out'

'The bond is covered by English law, so once they are declared in default the lawyers will be trying to attach the assets of all the subsidiaries, including Dubai Ports World,' said one Nakheel bondholder, who asked not to be named.

This is unlikely to happen, said Essam al-Tamimi, Senior Partner at Dubai-based law firm, Al Tamimi and Company.

While the ruler of Dubai and the government are subject to court orders just like everybody else, their assets cannot be seized and sold by public auction, Tamimi said.

'The UAE courts will order everyone to pay their debt, you, me and the ruler, we are all equal under the law,' he said.

'But when it comes to government debt, following the issuing of the judgement ... like in a lot of countries, the attachment of government assets and selling them by public auction is not allowed.'

Nakheel bondholders hoping to get their hands on Dubai government assets are likely to be disappointed, especially after the government said this week it was not responsible for the debts of Dubai World. Some creditors had assumed that the   Gulf emirate would guarantee the liabilities.

Confusion may have arisen from the prospectus for Nakheel's 2010 sukuk, which states: 'References in the law to the Government of Dubai include its departments and any other establishment or public authority and so would include Nakheel and may include the Issuer.'

For international bondholders, the recovery of what they are owed may be further complicated by the UAE's foreign ownership laws. Even if Nakheel's assets -- mostly land -- are seized and liquidated, their entitlement could be restricted, lawyers say.

For some bondholders, all this confusion has just got a bit too much.

'Remaining bondholders might be fine in the end, as we know there are real assets there, but which assets do the bondholders have claim to in Dubai jurisdiction?' asked Brinda Kirpalani, head of the credit research team at OFI Asset Management in Paris, which sold its paper following last week's announcement.

'Quantifying these assets and the recovery value, given the lack of transparency of the financial statements, along with the lack of communication, were reasons to get out.' – Reuters