Dubai World, the state-owned conglomerate whose debt problems sparked last year’s financial crisis in the emirate, has said it has reached an agreement “in principal” to repay its creditors.

It has proposed repaying 30 percent of its $23.5 billion debt within five years and the remainder three years later.

“Dubai World is pleased to announce that headline economic terms have been agreed in principle with the co-ordinating committee,” which represents 60 percent of the group’s bank lenders, it said in a statement.

Dubai World is negotiating with a core committee of seven banks, including RBS.

The chairman of Dubai’s Supreme Fiscal Committee had said at the beginning of the month a deal could be completed within two weeks.

“We are pleased that we have received unanimous support in principle… on the headline economic terms to our restructuring proposal,” said Aidan Birkett, chief restructuring officer of Dubai World.

“This is an important milestone and reflects our efforts to achieve the best possible solution for all stakeholders.

“The proposal puts the company on a sound financial footing and reflects the continued support of the government of Dubai and its lenders.”

However the main sticking points are concerns by the banks on the impact of holding the loans on their balance sheets for so long and that the interest rate is too low.

Furthermore the deal must be approved from banks outside the core negotiating committee - these are owed some 40 per cent of the debts. There’s also the matter of Dubai’s overall debt burden, which currently stands at $109bn.

Dubai World’s debts were built-up during an unprecedented property development programme during the Noughties, which included the manmade Palm islands and the World.

However the emirate was caught up in the global credit crunch, and became unable to raise new loans to pay off old debt.

It default on the repayment deadline of $26 billion in debt last November sent local stock markets in freefall.

But the new year has seen an improvement. In March Dubai unveiled a $9.5 billion rescue plan for Dubai World and its property unit, Nakheel. Whilst last week it paid off a $980 million Islamic bond.