­DUBAI: Dubai’s move to repay and restructure some of its $80 billion debt and words of confidence from policymakers may not be enough to convince skeptical investors that the emirate could pay its bond obligations. Successful debt restructuring is essential to prevent the debt-laden Dubai – already bailed out by the federal government once – from defaulting and cutting off overseas financing channels for the emirate whose 6-year oil boom burst last year, causing a big crash in the property market. 

Property developer Nakheel, part of state-owned conglomerate Dubai World, has repaid a $1.2 billion securitized bond a month ahead of its maturity date, according to two bankers familiar with the deal. 

The Dubai government is also  launching bond roadshows in Europe, Asia and at home from this week in a move seen to test investor appetite for fresh financing. Dubai International Capital, a subsidiary of Dubai ruler’s investment vehicle, has launched syndication of a $550 million loan. 

While these developments signal a step in the right direction, the fate of Nakheel’s $3.5 billion Islamic bond due in December and Dubai’s upcoming $10 billion support bond as well as even more maturing debt next year are the main remaining issues for investors. 

“Restructuring will take quite a while. All hinges on how far markets will recover. There is a lot of debt maturing in 2010 and that will be a challenge for Dubai,” said Eckart Woertz, program manager of economics at Gulf Research Center. “They need to find refinancing and try to keep cash generating industries. They will try to reprioritize; where assets and companies are underwater you need to try to cut back or they might think about exit strategies.” 

Hit by the credit crisis and liquidity crunch, developers in Dubai cancelled or postponed multi-billion-dollar construction projects with property prices halving since last year. 

Dubai’s benchmark index rose 1.4 percent Monday, helped by optimism for Nakheel’s debt restructuring, while prices of its $3.5 billion sukuk maturing on December 14 rose to 106 from a low of 103 late last week. 

The cost of insuring Dubai’s sovereign bond against default, measured by credit default swaps, stood at around 297 basis points , having risen to 943 bps in February. 

“They are drumming up interest again. It means people will get to see firsthand and ask questions about what’s happening. It puts Dubai into communication with the market they want to tap in the future and opens the door to look at the books and the numbers irrespective of the outcome,” said Haissam Arabi, CEO of Gulfmena Alternative Investments, a regional hedge fund. “[But] We still want to see where the [next] $10 billion will be subscribed to and the future debt maturing in 2010.” 

Policymakers are also sending brighter signals. Dubai’s Finance Ministry delayed the final $5.5 billion cash injection out of its $19.1 billion rescue facility as banks do not need it, according to a newspaper report. 

The deputy UAE central bank governor said last week that its upcoming $10 billion bond should interest private investors, adding that Dubai has weathered the worst of the crisis. 

The UAE’s central bank took up the first tranche of the $20 billion bond issue in February and Nakheel, which developed Dubai’s palm-shaped islands – has said it received the fund. 

“They cannot and do not want to rely solely on Abu Dhabi for their refinance needs. Its pockets are deep but every pocket has a bottom,” Woertz said. “It’s very important to keep credibility and access to international capital markets, so I would expect that bonds and traded debt instruments are all fully and timely paid to send the right signal to the markets. Debts owed to banks might be something different, here negotiations about rescheduling may well happen behind closed doors.” 

Earlier this month, Sheikh Ahmad bin Saeed al-Maktoum, a member of Dubai’s financial crisis committee, said Dubai would be able to service government debt. 

“The sector is working hard to digest the developer distress, but liquidity is still a very scarce commodity,” Chet Riley, equity strategist at Nomura, said in a note to clients.