D-Day nears for Dubai's $3.5 billion debt

Heavy rain pounded Dubai on Sunday adding to the gloom of the emirate's debt woes a day before the deadline of the $3.52 billion (2.16 billion pounds) bond by state-owned developer Nakheel, with no word on how it will be handled.

• Dubai’s stock market did soar for a second consecutive session on Sunday as traders reacted to a surge in Nakheel’s bond price last week on mounting speculation it will repay.
• The Islamic bonds, or sukuk, had been trading around 110 cents to the dollar before the government shocked investors on November 25 with a request for a six-month standstill on the debt of state-linked Dubai World.
• The announcement sent the sukuk down to mid-40 lows, but closed on Friday at about 54 cents to the dollar.
• Fund managers and bankers regard Monday’s outcome as the litmus test for Dubai World’s planned $26 billion restructuring and Dubai as a whole for resolving its debt burden.
• But the odds of Nakheel, the developer of palm-shaped islands, repaying are low.
• “It’s very hopeful people (speculating),” says a Dubai-based fund manager. “It seems very strange that if Dubai World intended to pay they would have gone through the last two weeks of pain.”
• A sudden u-turn and repayment would placate disappointed and confused investors in the immediate term. Dubai’s handling of the situation has tarnished its reputation.