Nakheel, the property developer behind Dubai's palm-shaped islands, has proposed repaying its bank debt after five years and one outstanding $1.85 billion syndicated Islamic loan after seven, a source close to the company said.

Bankers have until the end of August to respond to undisclosed terms of Nakheel's multi-billion dollar restructuring plan, including the rates of interest and repayment schedules for syndicated and bilateral loans.

The source said under the plan, repayment of Nakheel's $1.85 billion Islamic loan, due 2012, would take seven years while all other bank lending debt would be paid after five years.

A spokeswoman for the Dubai government and a spokesman for parent firm Dubai World both declined to comment. Few details of the proposals put to bankers earlier this month are known but separate rates of interest are expected for different loans.

One proposal is a rate of 4 per cent, a source told Reuters at the time. Nakheel's talks with creditor banks centre on the syndicated loan, which is based on a sharia-compliant Ijara leasing structure and backed by a tangible asset, as well as an unknown number of bilateral loans.

Barclays Capital, National Bank of Abu Dhabi and Dubai Islamic Bank comprise a co-ordinating committee handling the restructuring.

The majority of mandated arrangers on the loan are UAE lenders and include Emirates NBD and Abu Dhabi Commercial Bank, both on a bank panel handling talks with Nakheel's parent Dubai World.

Participants include both regional and international lenders, including several Asian lenders. The restructuring talks of Nakheel, which overstretched itself building islands in the shape of palms and other ambitious real estate projects, are separate from those of its equally troubled parent Dubai World.

Last week, Dubai World warned that lenders, aside from the government's own support fund, would face a 'significantly' worse deal if its debt plan fails and it is forced to seek liquidation, according to the debt restructuring plan outlined to bankers.

Pending creditor approval for the two debt deals, it is envisaged that the Dubai government will take on direct and full ownership of Nakheel, Dubai World's chief restructuring officer said in March.-Reuters