Dubai World starts spinning again after £6.4bn funding boost

The proposal, which still needs approval from creditors, is key in clarifying the options for scores of lenders owed the majority of the $26bn (17.4bn) in debt that Dubai World said it was seeking to restructure in November.

Under the plan, lenders – including Royal Bank of Scotland (RBS) and Lloyds Banking Group – will get their money back in five to eight years, while two key bonds from Dubai World's Nakheel unit will be repaid.

The conglomerate's woes came to symbolise Dubai's boom-to-bust as the global meltdown dried up the cheap credit on which the glitzy city-state had depended to fuel its meteoric growth.

The news drove Dubai's stock exchange to an 11-week high and sent the price of developer Nakheel's bonds soaring.

The plan calls for no new funds from Abu Dhabi, Dubai's wealthier neighbour, which bailed out the emirate last year. But Dubai will get access to the $5.7bn remaining from Abu Dhabi's earlier $10bn lifeline and will pay for the rest of the cash injection itself.

Dubai yesterday said it will pour $8bn into Nakheel, with a $1.2bn debt-for-equity swap also part of a move to take the property developer off Dubai World's hands and place it with the government directly.

It will also pump $1.5bn into Dubai World as part of a recapitalisation that would include an $8.9bn debt-for-equity swap.

The emirate – home to an indoor ski slope and favoured by expatriates for its glitzy lifestyle – struggled to cope when the economic boom in the region, driven by record high oil prices and easy credit, came to an abrupt end during 2008's global financial crisis.

Initial feedback on the proposal, which must now be approved by the conglomerate's 97 creditors, was positive.

Luis Costa, director for emerging markets debt strategy at Citigroup, said: "The fact that we are still talking only of extension (of loan repayments] rather than a haircut is highly positive."

But Robert McKinnon, chief investment officer at Asas Capital, said: "This is probably the best outcome that could have come out, but some of the details are vague.

"It says Nakheel will renegotiate at commercial rates, but without a guarantee from Dubai World or the government, these rates would be pretty high."

Dubai World is negotiating with a seven-member committee representing the 97 creditors. The panel includes RBS and Lloyds.

Core creditors met on Wednesday to finalise months of talks on how Dubai World can restructure its debt, about a quarter of Dubai's estimated total debt of $101bn.