Creditors to Dubai World could be offered 60 per cent of the money they are owed, under the latest proposal to restructure the company’s $22 billion of outstanding debts.

The deal would ensure creditors to the conglomerate are repaid after seven years following a 40 per cent “hair cut”, with the agreement backed by the Dubai government.

But the Dubai Financial Market suffered its biggest fall in three weeks following the report by Zawya Dow Jones, as frustration over lack of progress in the negotiations resurfaced, as well as renewed fears of debt default.

A spokesperson for the Dubai Financial Support Fund – which has channelled at least $6.5bn to Dubai World from the $20bn in rescue funds provided so far to Dubai by the UAE and Abu Dhabi – said the negotiations between Dubai World and its banks were confidential and that fund officials could not comment.

Dubai World suspended interest payments until May, will offer creditors only 60 cents in the dollar after seven years.

Under an alternative offer proposed by Dubai World, 100 per cent of its bank debt would be repaid after seven years, but 40 per cent of this would consist of assets in property developer Nakheel, and the agreement would not carry a sovereign guarantee.

Dubai World’s biggest lenders include HSBC, Standard Chartered, Royal Bank of Scotland and Lloyds. All have signalled their willingness to agree a long-term debt restructuring but are hoping to retrieve their money back through extending the maturities of loans and the sale of state-owned assets.

The banks could also take on real estate assets to cover the debt. Many of Nakheel’s grand construction projects have been suspended or scrapped as the economic downturn wiped up to 50 per cent off property values.

Lord Mandelson, the UK Business Secretary, added his weight to the argument over the weekend, during a visit to Dubai.

Speaking at a lunch for British business delegates, said: “Time is running out. The current uncertainty and lack of agreement cannot go on much longer.

“Dubai has to be conscious of the fact that how it resolves its current problems and how it deals with its creditors will mean a great deal for its brand, its reputation and how it secures investment from overseas in the future.”