Bankers expect to reach a restructuring deal with the Dubai World this week, pushing the cost of insuring Dubai's debt against default down further and lifting Nakheel's 2011 bond.

Dubai World expects to put its debt plan to creditors as early as this week, but the final proposal is being delayed by efforts to accurately value developer Nakheel's assets, bankers said.

Dubai World's plan for repaying $26 billion (Dh95.49bn) in debt will not include a proposal to raise capital or contain any surprises, one of the bankers said, such as the repayment of Nakheel's Islamic bond in December. Valuing Nakheel's assets and determining the size of any financial help from the government would determine the size of the haircuts creditors would have to take.

Dubai's index has risen for two consecutive days, bolstered by market talk that Dubai World's debt restructuring would be more favourable to lending banks than previously thought.

"People are saying an announcement may soon come from Dubai World and what's being offered will not be as bad as feared, so some investors are building positions now to stay ahead of the curve," said Mohammed Yasin, Shuaa Securities Chief Executive.

Analysts said the rebound was due to an improvement in market sentiment. "The rise in Dubai's CDS levels were probably overdone and the global environment has improved," said Eric Swats, head of asset management at Rasmala Investments.

Nish Popat, head of fixed income at ING Investment, said there was a view that sovereign CDS prices had widened too far.

Dubai CDs drops

Dubai's credit default swap (CDS) has fallen below 500 basis points (bps) to 479.657 bps yesterday for the first time since February 2, when it touched 496.433 bps, according to CMA Vision data.

CDS represents the level of premium to be paid to insure losses on securities in the event of a default, and hence a higher CDS represents higher risk perception. The Dubai CDS touched the year's high of 651.2994 bps on February 15.

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