Dubai World creditors await court definition of sukuk

Like with so many other things, when Dubai's credit-crazed corporations decided to tap the global sukuk market to raise funds few investors thought twice about the Shar'iah-compliant bonds. It's taken the threat of default to shake investors out of their complacency with regard to these structures.

Dubai World property developer Nakheel, best known for its Palms development in the Gulf, has $5.25 billion in outstanding sukuk subject to the standstill agreement that the government asked creditors for on November 25, including $3.5 billion due on December 14. While the rest of the $26 billion debt restructuring looks to be contained, such a restructuring is unprecedented in the nascent Islamic finance industry.

"This will mark the first test of the legal framework underpinning sukuk in general, and it could therefore have implications for Islamic fundraising globally," said Fahd Iqbal, an analyst at Middle Eastern investment bank EFG Hermes, in a report.