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.
But the deal must still be approved by other banks that were not involved in the negotiations.
Dubai World stunned global markets in November last year when it asked for a six-month delay on debt repayments.
The terms of the restructuring include converting $8.9bn of government debt into equity.
The government of Dubai and Dubai World had tabled this offer to a committee representing its bank lenders in March after three months of negotiations.
"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."
The Royal Bank of Scotland was the lead bank in a seven-strong co-ordinating committee negotiating Dubai World's debts.
There are a further 90 lenders exposed to the risk of default.
It is understood some of smaller banks, under pressure to call in their loans, may take only a share of the sum borrowed by Dubai World.
The larger banks, including RBS and HSBC, have not written off loans, but negotiated a deal which would extend them over a longer time.
The problems at Dubai World stemmed largely from its property development operation, Nakheel, which needed money to pay investors an Islamic bond.
The request for a halt of debt repayments stoked fears of a state default over sovereign debt.
But since February, Dubai has issued bonds worth $20bn to raise finance to support struggling firms. These were fully subscribed by neighbouring Abu Dhabi and the UAE central bank.
excerpted from BBC News