Dubai reach "agreement in principle" on bank debt. Model for the rest of the world's debt restructuring?

The BBC article I just read on this topic is short on detail (link is at the end of this post). For example:

Dubai World, the state-owned investment vehicle, says it has reached an agreement "in principle" with most of its bank lenders to restructure debt worth $23.5bn (£16.4bn). It added it would be left with debts of $14.4bn after the restructuring.

The alert among you might be asking the same question that I am at this point: What happened to the other (approx 40%) $8.9bn then? Is this a partial default, or what?

Later in the article we have something that I for one find *very* interesting:

The terms of the restructuring, include converting $8.9bn of government debt into equity.

So it seems like they are looking to convert almost half of their debt commitments into equity commitments. On the little information we have available here, and the reality that surrounds us in the world right now, that looks to me like a pretty sweet deal for all concerned!

With the world's debt problems as deep they are, I am sure that stopping the bleeding of paying interest on those debts is the answer to the conundrum. For example in the UK we are paying £30bn+ per year just on the interest of our national debt. This is ludicrous! We have politicians arguing over the ability to afford a few £billion in public sector budget cuts, and meanwhile none of them is talking about the £30bn+ that is, literally, wasted on debt interest each year. That is about the same size as the budget for law&order and safety (police, firefighters, courts, etc). This is just madness!

We (and the rest of the world) will *never* be able to repay these debts in full [with honest money]. The simplest way to achieve that goal of ceasing the interest payments (short of simply defaulting, or hyperinflating the currency into oblivion) seems like it would be to have the bondholders agree to convert the debts into equity, like the holders of this Dubai debt are - so they will no longer receive the steady interest payments on the debts for the duration of the loan period, but they will instead receive their share of the distributed profits from whatever entity their equity is granted in, indefinitely.

This seems to me like the holy grail for both the debtors (who will otherwise never escape their debts honestly) and the creditors (who will never see all of their money back, in real terms) alike.

http://news.bbc.co.uk/1/hi/business/10129958.stm