Dubai gets $10bn from Abu Dhabi to control crisis

Monday, December 14, 2009 01:57:45 PM, Agencies

Dubai: Dubai's government has said it has received $10bn from Abu Dhabi to help it repay an Islamic bond and fund the troubled property developer Dubai World.

The announcement on Monday came on the same day Nakheel, the property development unit of Dubai World, was due to settle the $4.1bn bond.

The move by Abu Dhabi follows weeks of uncertainty in Gulf stock markets after Dubai World said on November 25 that it needed more time to pay $26bn in debt.

Dan Nolan, Al Jazeera's correspondent at the Gulf Co-operation Council summit in Kuwait City, said that while it had been expected that Abu Dhabi would help its Emirati neighbour, the scale of the assistance was a surprise.

'Nothing for Abu Dhabi'

"Nobody was expecting that this $4.1bn Islamic bond that was maturing today would actually be paid in full," he said.

"Abu Dhabi said just a few days after this story broke that they would not be writing any blank cheques, and that they would be choosing when and where they wanted to assist.

"What has been announced so far has not involved any obligations on Dubai to Abu Dhabi. Abu Dhabi will get nothing from this, other than stabilising Dubai when it was needed."

Sheikh Ahmed bin Saaed al-Maktoum, the chairman of the Dubai Supreme Fiscal Committee, earlier said in a statement: "The government of Abu Dhabi has agreed to fund $10bn to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World."

"As a first action for the new fund, the government of Dubai has authorised $4.1bn to be used to pay the sukuk [Islamic certificate] obligations that are due today."

Dubai's stock market opened up 10.10 per cent on Monday, after news of Abu Dhabi's grant was announced.

The yen fell sharply against other currencies on the news, while the US dollar increased to 88.90 yen and the euro also jumped to 130.43 yen.

Hong Kong's Hang Seng index rose in the last minutes of morning trade to finish in positive territory, while other markets across Asia also received a boost.

"We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices," al-Maktoum said in the statement.

"Dubai is, and will continue to be, a strong and vibrant global financial centre. Our best days are yet to come."

Markets unstable

Any excess funds from Abu Dhabi's grant would help cover Dubai World's obligations up until the end of April 2010, the statement said.

Dubai has announced a bankruptcy law that can be invoked if Dubai World and creditors fail to reach an agreement on debt maturing in the future.

"Dubai will announce a comprehensive reorganisation law, a framework that is based upon internationally accepted standards for transparency and creditor protection," al-Maktium said in the statement.

"This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations."

The assistance provided to Dubai by Abu Dhabi, the largest member of the United Arab Emirates federation, is an attempt to stabilise regional markets and reassure potential investors that the UAE as a whole is on a sound financial footing, Nolan said.

"Since this news [of Dubai World's defaults] first broke a few weeks ago, Abu Dhabi's stock markets have been hammered just as badly as Dubai's.

"All of the Gulf nations have been affected. At the Gulf Co-operation Council summit in Kuwait there will be some happy faces, because they have a vested interest in Dubai - not only in terms of their own stock markets, but also because of the future financing of their own projects that are in the pipeline."

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