Global General
Abu Dhabi gives Dubai $10 billion to cover debt
(Agencies)
Updated: 2009-12-14 16:17
DUBAI, United Arab Emirates – Dubai's government said Monday it has received $10 billion in emergency funds from its oil-rich neighbor Abu Dhabi that will help pay debts owed by the struggling Dubai World conglomerate.
Dubai's ability to repay that debt had been seen as a key test of the emirate's creditworthiness.
"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," Sheik Ahmed bin Saeed Al Maktoum, chairman of the Dubai supreme fiscal committee, said in a statement. "Our best days are yet to come."
The debt-laden emirate said the rest of the funds provided by Abu Dhabi will be used to cover Dubai World's interest expenses and general business needs through the end of April, and to pay bills owed to "existing trade creditors and contractors."
Investors cheered the news, which provided some clarity in a crisis that erupted late last month when the conglomerate unexpectedly said it was seeking new terms on repaying some of the $60 billion it owes.
The Dubai Financial Market's main index shot up 10.1 percent in early trading. Abu Dhabi's stock market jumped 7.4 percent. Stocks in Asia rebounded from earlier losses after Dubai's announcement.
Fahd Iqbal, a Dubai-based analyst at Middle East investment bank EFG-Hermes, said the rally was to be expected but urged caution.
"This announcement constitutes a specific bailout of Nakheel, suggesting that as an entity (it) was deemed to be 'too big to fail,'" he said. "It does not, however, constitute a bailout of Dubai Inc. or Dubai World as a whole and this is important to highlight."
Dubai World said in a separate statement it welcomed the financial support, which will provide "funding and a stable basis" for a restructuring the company announced last month.
The company said it is pushing ahead with talks to convince lenders to agree to a "standstill" — effectively a delay — on paying back some other debt it owes.
"As long as a standstill is successfully negotiated, Dubai World has assurances that the government of Dubai ... will provide financial support to cover working capital and interest expenses to ensure the continuity of key projects," the company said.
Meanwhile, Dubai's government said the United Arab Emirates' central bank, based in the federation's capital, Abu Dhabi, is prepared to provide support to local banks.
Dubai also said it plans to announce a reorganization law that could be used in case Dubai World is "unable to achieve an acceptable restructuring of its remaining obligations."
A person close to the Dubai government said the new law provided a legal framework for addressing corporate debt, though it did not mean a bankruptcy filing by state-owned companies was certain.
"The current bankruptcy law is untested," the person said. "Dubai World needed a legal process to go through. The government was very focused on creating something that would be fair and transparent to everybody."
He insisted on anonymity as a condition for briefing reporters on a conference call.
Dubai created Dubai World — whose sprawling holdings range from ports to real estate and luxury retail — to diversify the small sheikdom's economy and boost its international clout.
Dubai is one of seven semiautonomous sheikdoms that make up the United Arab Emirates, but unlike Abu Dhabi it has little oil of its own.
The conglomerate and the emirate had relied on cheap cash as they rapidly expanded earlier in the decade. But the bills are coming due and the money is not there.
That crunch prompted Dubai's government, on Nov 25, to announce that Dubai World would seek a six-month "standstill," effectively a delay, on repaying some of its $60 billion in debts.
The company later said the restructuring would involve roughly $26 billion in debts, and indicated it may sell some assets to raise the cash.
