In a dramatic U-turn, Dubai today announced that it has received a $10bn bail-out from the neighboring Emirate Abu Dhabi that will enable it to pay off the immediate debts of its most troubled state-run companies. Confirmation that the government of Abu Dhabi would supply the money came on the day a sukuk, or Islamic bond, was due for repayment by Nakheel, a property development arm of Dubai World, at a total cost of £4.1bn. The bond had come to be regarded as a “bellwether” first for the emirate’s debts and then, after it asked for a “voluntary standstill” on Dubai World’s other liabilities last month, for its international credibility.
The resort to Abu Dhabi is a major climbdown for Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum. Both his advisers and those of Abu Dhabi had been insisting that Dubai’s problems were being handled internally or by the federal authorities of the United Arab Emirates, of which both city-states are members, and of which Sheikh Mohammed is prime minister.
The statement will renew questions over what assurances Abu Dhabi has been given from Dubai in return. There has been speculation that it will seek to take control of prize “Dubai Inc” assets such as Emirates Airlines, though analysts say a greater degree of political integration is the more likely pay-off. Whatever the political cost, the announcement sent a shudder of relief through the markets.The main Dubai exchange rose 10pc, while markets throughout Asia also rebounded having fallen earlier. Nakheel is the developer of some of Dubai’s most adventurous projects, including the three “Palm Islands” and The World, an artificial archipelago in the Gulf which was selling “countries” to individual investors.
Last week Nakheel revealed first half results showing a loss of £3.5bn and revenue down by 78pc, explaining its inability to meet the bond, whose value has fluctuated wildly all year in line with the latest thinking of whether the government would or would not come to it aid. Hopes seemed to be dashed after the director of the Dubai finance department said creditors had been wrong to think the government stood behind the debts of its state-owned companies. The statement today came from his boss, Sheikh Ahmed bin Saeed, the ruler’s uncle and head of the supreme fiscal committee. “The Government of Abu Dhabi has agreed to fund $10 billion to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World,” he said.
“As a first action for the new fund, the Government of Dubai has authorized $4.1bn to be used to pay the sukuk obligations that are due today.” The statement went on to say the remainder of the fund would be used to keep the company going until the end of April, a period during which it is to undergo a restructuring to ensure its long-term viability. The fund will also be used for “the satisfaction of obligations to existing trade creditors and contractors” in recognition of the “the concerns of Dubai World trade creditors within the Emirate of Dubai”.
The company, and Nakheel in particular, is thought to owe hundreds of millions of dollars to construction firms and others involved in the building of its projects. The reference to “within the Emirate” will lead some to worry that local creditors will be given preference, and further questions are sure to be asked. Finally, the statement also promised an immediate “comprehensive reorganization law” , “based upon internationally accepted standards for transparency and creditor protection”. This appears to recognize that confusing signals over how it would deal with Dubai World’s creditors in recent weeks had severely damaged its reputation as a financial center. The size and provenance of the bail-out are the biggest surprises. The support fund, established earlier this year, has already received $10bn from the central bank, and raised $5bn from Abu Dhabi-owned banks at the same time as the “voluntary standstill” was announced. It was originally only supposed to raise $20bn in total.
published @ The Telegraph
The Dubai Stock Market DFM is up by more than 10% (intraday, still trading), most stocks hit the daily limits. Are the good times back to Dubai, what do you think? Leave your opinion below …
