Dubai World on Thursday agreed economic terms with its major creditors over the most controversial aspect of the government-owned company’s restructuring of $23.5bn in debts, providing hope that the drag on the emirate’s economy can be lifted.

The troubled conglomerate said the co-ordinating committee of creditor banks, which hold just under 60 per cent of the debt owed to lenders, had agreed in principle to extend maturities to either five or eight years on the $14.4bn owed by the holding company.

Nakheel, Dubai World’s distressed property developer, is also near to a separate agreement with its financial and trade creditors as the government helps pay off its bonds with the help of last year’s $10bn support from the government of Abu Dhabi.

Dubai hopes a quick agreement on the Dubai World restructuring proposal – first made in March – will allow the emirate to complete the biggest and most troublesome restructuring of its $109bn debt pile.

The Institute for International Finance said in a report this week Dubai might be able to stave off a second year of negative growth if it concluded its debt issues promptly and introduced reforms.

But some analysts warned that any resolution would be only the first step towards comprehensive efforts by the emirate to resolve its debt mountain, raise fresh funds and revive economic growth.

The Dubai stock market rose slightly on the news, while the cost of insuring against default on Dubai debt declined.

The co-ordinating committee of seven banks, including HSBC and Royal Bank of Scotland, will now attempt to persuade the other 66 lenders to agree the terms, with an all-bank meeting set for June.

Aidan Birkett, chief restructuring officer for Dubai World, was confident all banks would sign up to what is a “very fair” deal, so avoiding the need to push the agreement through a special tribunal.

He also believes the group’s assets, which can now be sold off in an orderly fashion during the next five to eight years, will more than cover the $14.4bn.

During negotiations with the banks, the government sweetened the deal by offering creditors the choice of three options intended to address concerns about interest payments and government guarantees.

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