Summit Notebook

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from Global Investing:

Dubai World crisis dispels wishful thinking

Dubai WorldThe Dubai World crisis has forced sukuk bond investors to wake up to the reality that sukuk isn’t completely straightforward, said Farmida Bi, a partner at Norton Rose, speaking at the Reuters Islamic Banking and Finance Summit in London on Monday.

“There seems to have been a lot of wishful thinking around implied (sovereign) guarantees and enforcement, which isn’t straightforward in this region,” she said.

In Dubai, for example, there are several distinct secular legal systems to grapple with, as well as Sharia law. “No one has worked out how these interact – it remains an untested legal system,” Bi said.

Bondholders of a $3.5 billion sukuk issued by Dubai World’s Nakheel subsidiary, a property developer, were forced to consider a debt repayment standstill request late last year. Wrangling around the restructuring continues.