Repayment of a $4.1 billion bond issued by Dubai developer Nakheel was set to complete on Tuesday, when other Islamic bond issuers reassured investors in replies to a soundness and health check by Nasdaq Dubai.

Government utility Dubai Electricity and Water Authority (DEWA) told bondholders it would make an interest payment on a $3.2 billion Islamic bond on December 16 as scheduled.

However, Dubai's stock market, up 22 percent in recent sessions, fell 1.5 percent, with analysts saying worries over Dubai's debt position remained high on investors minds. But the cost of insuring Dubai's debt against restructuring or default was flat.

Abu Dhabi threw debt-laden neighbor Dubai a $10 billion lifeline on Monday to head off a looming bond default by Nakheel, cheering Gulf and global markets on the day.

DEWA made its announcement in response to questions from Nasdaq Dubai for information to determine the current value of securities listed on the bourse, in a move linked to Dubai World's $26 billion debt standstill request.

Other Islamic bond issuers linked to Dubai's government, including DP World, Dubai Holding, Dubai Islamic Bank, and DIFC Investments, also responded to the request, with no surprises.

Goldman Sachs analyst Ahmed Akarli said in a note the investment bank estimated Dubai World had $40 billion debt outstanding and other Dubai entities faced similar challenges given the fact Dubai's total debt stocks stand close to $120 billion and at least $55 billion will be coming due ... within the next three years.

Ratings agency Moody's placed Abu Dhabi Commercial Bank, Commercial Bank of Dubai, Dubai Bank and HSBC MIddle East on review for possible downgrades, citing potential continued deterioration in Dubai's operating environment and exposure to Dubai World companies' debt.

Vyas Jayabhanu, head of investments at Al Dhafra Financial Broker said: The market overreacted yesterday on the Dubai news. This (Nakheel) is only one problem solved and it does not mean the recovery phase of the company (Dubai World) is on track.


Repayment of a bond issued by troubled developer Nakheel was on the way with funds distributed to the clearing system after being sent to the principal paying agent, it said.

Two bondholders told Reuters the funds were still to clear. This is a technicality, said Rami Sidani, Schroders Middle East head of investment, referring to the payment. The decision was made and the announcement was clear and so now it's a formality. This sukuk is behind us.

Nakheel has two other bonds outstanding -- a 3.6 billion dirham ($980 million) issue maturing on May 13 next year and a $750 million deal due January 2011. Neither are guaranteed by the government or Dubai World.

The bond being repaid on Tuesday was a litmus test for parent company Dubai World's planned $26 billion restructuring, a move that shocked global financial markets when Dubai requested a repayment standstill on November 25 on debt mainly linked to property firms Nakheel and Limitless.

Nakheel's January 2011 bond has risen to 61/66 from 40 at Friday's close according to Reuters data.

(Writing By John Irish; Editing by David Holmes and Dan Lalor)

($1 = 3.673 Uae dirhams)