Dubai World, the state-owned conglomerate, has reached a deal in principal to restructure $23.5 billion with its core lenders, clearing one hurdle for Dubai but leaving investors with other debt concerns.

The deal, which requires no new support from the government, must still be approved from banks outside the core negotiating committee, the company said in a statement on Thursday.

'This closes the main chapter but that doesn't mean we don't have a bumpy ride ahead,' aid Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.

'There are still issues such as Dubai Holding and others but this has been mostly discounted for. The air is not completely clear but the main chapter is.

Investors, worried about a lack of transparency, are fretting about the risk of more debt problems at Dubai-linked entities. Speculation has centred on Dubai Holding -- owned by the emirate's ruler, Sheikh Mohammed bin Rashid al-Maktoum -- which has about $10 billion in outstanding debt.

A coordinating committee of seven banks represented nearly 100 creditors during the negotiations with Dubai World.

The proposal, which offers repayment over a five- or eight-year period, allows banks to opt for an option of a higher payment in kind coupon (PIK), a higher government shortfall guarantee, or get a higher cash and PIK coupon.

In March, Dubai unveiled a $9.5 billion rescue plan for Dubai World and property unit, Nakheel. The developer, builder of man-made islands in the shape of palms, paid off a $980 million Islamic bond last week.

The proposal has two tranches covering the $14.4 billion owed to the bank lenders. The first tranche covers $4.4 billion, offers a five-year maturity and a 1 per cent cash interest but no payment-in-kind or shortfall guarantee.

The second tranche covers $10 billion, comes with an eight-year maturity and offers 1 per cent interest, and varying PIK rates depending on the options lenders choose. The PIK rates range from 1.5 per cent up to 2.5 per cent in certain years of the maturity.

In addition, the deal also offers options for local lenders worried about the cost of funding and for lenders who funded in either US dollars or dirhams.

“This is an important milestone and reflects our efforts to achieve the best possible solution for all stakeholders,” said Aidan Birkett, chief restructuring officer of Dubai World.

“The proposal puts Dubai World on a sound financial footing and reflects the continued support of the Government of Dubai and its lenders. It offers the company the ability to maximise the value of its assets over the medium to long term,” Birkett added.

"It's a largely expected but positive development,” said Mohieddine Kronfol, managing director at Algebra Capital, a licensed financial services provider.

”It allows us to put issue of Dubai World behind us and focus on other companies that need to get their finances in order. I think they (holdouts among local banks) will ultimately fall in line. The market has largely priced in the expectation of an agreement."         

Ali Khan, managing director and head of brokerage at Arqaam Capital, which offers investors international brokerage practices, said: "Any time you have progress it is positive, we should see a positive reaction (from the markets)....I suspect a mixed session: we still need to understand how the local banks are involved and the impact of the final terms." – Reuters