DUBAI -- "Quasi-sovereign companies in Dubai have raised substantial syndicated and convertible (sukuk) debt over the last couple of years according to a report by Citi Investment Research.

It added that this "prompts fears that in a credit-crunched world some companies may encounter financial distress citing the yield on Nakheel's sukuk debt maturing at the end of 2009 that is currently over 15 per cent.

The sukuk issued in 2006 raised US$3.52 billion with holders having the option to participate in an IPO occurring up to 1 year after maturity. However it said that business mix and phased capital expenditure are mitigating factors.

 "We argue that Nakheel capex is modular and can be postponed in case of a serious slowdown in the market. Furthermore, off-plan sales can be accelerated and land can be sold to release cash."

A Nakheel spokesperson added, "Globally the financial markets are in a period of unprecedented crisis, where pricing of financial instruments has been distorted across the board. Like the pricing of other sovereign credit, the pricing of the Nakheel Sukuk have similarly been affected, and current market pricing is not reflective of the credit quality of the Nakheel Sukuk The report noted that land prices have trebled since the November 2006 sukuk.