Dubai unveiled a long awaited debt-restructuring plan yesterday, pledging to inject $9.5bn into the troubled conglomerate Dubai World, most of which will go to its developer Nakheel and spur the emirate's economy.

The state support includes $3.8bn from the Dubai government over the next three years and the remaining $5.7bn from a $10bn loan granted by neighbouring Abu Dhabi.

Dubai's reputation as the Gulf's financial and commercial hub has taken a battering since it surprised financial markets in November by asking to restructure $26bn in debts. Yesterday's plan was broadly welcomed as domestic stock markets rose and the cost of insuring against a default fell.

“There's no such thing as a magic wand, but this should help a lot,” said Simon Cooper, regional chief executive of HSBC, a creditor to Dubai World that sits on the co-ordinating committee of banks negotiating with the conglomerate.

“This lets people look forward, not backward. Dubai World's problems have caused some paralysis, and once it's behind us we will see a pick-up.”

The proposals would extend maturities on bank loans and inject cash into the businesses, in the hope that the holding company could be transformed into a cash-generating enterprise within five to eight years. Nakheel's 2010 and 2011 bonds will be paid in full, as long as the proposals are adopted by a majority of the stakeholders.

Aidan Birkett, Dubai World's chief restructuring officer, hopes to finalise the plan within a few months.