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Nakheel expected to seek more help from Dubai government bail out fund

The has already received loans through the bond scheme to help it with liquidity problems due to a slowdown in Dubai's real estate sector which has seen house prices fall by up to 50% in some parts of the emirate.

Now it is looking for help to repay a $3.52 billion Islamic bond as part of a restructuring move before it matures in December. The money was used to finance some of its mega projects including the iconic Palm Islands, the world's biggest man made islands.

The bond was issued in 2006 when the property market in Dubai was booming. Now Nakheel, like many other companies in Dubai, is busy working out how to settle its debts amicably while continuing to build and invest.

The company recently undertook a round of cost-cutting and is said to be asking its contractors to take discounts on payments due to them.

Nasser Al Sheikh, director general of Dubai's Department of Finance, confirmed that the developer's move would qualify for funding under the government's scheme. It states that the government would lend more from its support fund if a company's business model is sustainable and if its cash flow supports the interest payment and there is a repayment plan.

More than 50% of the bond has already been distributed to government-related entities by the UAE Central Bank, which bought-up the entire bond. The $10 billion is the first phase of a $20 billion scheme. The second $10 billion is due to be released by the end of the year.

The outcome is being watched closely. As a result of the news of re-structuring ratings agency Standard & Poor's put numerous Dubai companies on watch for a credit downgrade.

'Nakheel has a large volume of public debt, much of it held by international investors, so a lot is at stake regarding international credibility of Dubai corporates that will likely at some point seek to borrow again in the global capital markets,' said Khalid Howladar, a vice president and senior credit officer for structured and Islamic finance at Moody's ratings agency.