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Even as the entire Dubai Inc bond / sukuk universe rallies on this morning's seemingly positive announcement on Dubai World (DW) and Nakheel's restructuring proposal (Proposal), we would be cautious on indiscriminately extending the potential positive outcome for Nakheel bonds to other Dubai Inc entities.

· * We maintain our Overweight recommendation on Dubai Holding Commercial (DHCOG), and are initiating coverage on Jebel Ali Free Zone (JAFZA) and DIFC Investments (DIFCI) with Underweight recommendations on the back of the post Proposal rally. We recommend that investors sell these bonds into strength. We are also initiating coverage on DP World with an Underweight on a relative value basis.

· * Although positive in terms if providing clarity, there is limited new positive information in the Proposal to make us significantly re-rate Dubai Inc entities' credit risk to lower levels. For starters, the government has not explicitly ruled out restructuring other Dubai Inc entities, and continues to distinguish between sovereign and non-sovereign obligations. In addition, there is no mention of additional Abu Dhabi government support. Also, there is lack of clarity on source of funding on repayment of DW bank creditors in the absence of a government guarantee. Lastly, repayment / refinancing risk for overall Dubai Inc risk remains unmitigated and front-end loaded (debt maturities of $20 billion in 2011 as per IMF estimates – this excludes DW debt being restructured).

· * The Proposal is clearly positive for Nakheel sukuks, somewhat positive for trade creditors – but seemingly negative for bank lenders (in particular lenders at DW level). There is no mention of a government repayment guarantee for DW bank creditors, and the government intends to inject only $1.5 billion cash into DW to support its creditors and working capital commitments. In essence, DW creditors will be relying upon assets sales and dividends for eventual principal repayment.

March 30 (Bloomberg) -- Dubai World’s plan to restructure $24.8 billion of its borrowings won support from HSBC Holdings Plc, one of its biggest creditors.

“We are comfortable with the proposal,” Stuart Gulliver, HSBC’s head of investment banking, told reporters at a press conference in Abu Dhabi today “We’re very, very close to having a completely satisfactory structure here,” he said. Asked if the bank would sign up to the proposal, he said “if they put the document in front of us, yes, we would.”

Dubai World, one of the emirate’s three main state-owned holding companies, and its property unit Nakheel PJSC, are seeking to renegotiate their borrowings after the global credit crisis battered Dubai’s property market left the emirate’s companies unable to raise financing.

Dubai World asked creditors on March 25 to roll over outstanding debt into two new loans of five-year and eight-year maturities. Lenders will be paid their principal in full, although the interest rate on the loans is still being negotiated with the creditor banks, Dubai World Chief Restructuring Officer Aidan Birkett said that day.

Dubai World’s creditors have been made aware of the interest rate on the new loans, and have been given a choice of maturities, Gulliver said.

Loan Maturities

Separately, Nakheel’s creditors were asked to extend loan maturities at interest rates linked to the Emirates interbank offered rate and the London interbank offered rate. Two of Nakheel’s Islamic bonds, which raised $1.73 billion, will be paid in full when they mature this year and in 2011.

Dubai World’s creditors will be paid interest below the market rate in cash. That will be supplemented by a so-called payment-in-kind, according to a person close to the Dubai government who declined to be identified because the talks are private. The person didn’t specify the size of the payment-in kind, which creditors would receive at maturity rather than over the lifetime of the loan.

Dubai World has also offered creditors a shortfall guarantee, where the government will make up the shortfall up to a certain level if the sale of Dubai World’s assets does not generate enough cash to repay loans, said the person.