Dubai gets support from U.A.E. Central Bank

Dubai, February 23: The once vibrant and pulsating Dubai, with colossal construction and expansion plans that epitomized boom time, is now feeling the heat of recession. The United Arab Emirates’ Central Bank agreed to support the emirate as Dubai is finding it difficult to repay its debt.

Dubai, home to the world’s tallest building and biggest manmade islands, borrowed $80 billion to turn its growth plans into reality. A lion’s share of that debt is due this year.

To bail itself out of the present financial crunch, the Dubai government will issue $20 billion in long-term bonds, of which $10 billion will be subscribed by the U.A.E.'s Central Bank. The unsecured, fixed-rate paper bond come with a five-year maturity and would provide Dubai ‘with the necessary liquidity’.

The bonds "will secure the necessary funding for Dubai to meet its financial obligations and continue its development programme," claimed the emirate.

Giyas Gokkent, an economist at the National Bank of Abu Dhabi PJSC, said, “A lot of people will change the way they’re looking at Dubai. We finally have concrete evidence that Dubai is supported and this should give a vote of confidence.”

Analysts are circumspect and have questioned Dubai’s ability to honor its financial obligations given the fact that the global financial turmoil has pushed up costs and cooled the property markets.

Eckart Woertz, economist at the Gulf Research Center opined that the issuance of bonds might not be a panacea. He said, “Credit-default swap prices offered for Dubai Inc. companies suggest that the free market wouldn’t have a comparable appetite for Dubai government bonds at the proposed pricing.”

While Dubai government has stepped in to bail out the emirate out of the present crisis, analysts opine that U.A.E. capital Abu Dhabi would provide rock solid support to Dubai if the latter finds itself in a mess.

Abu Dhabi, one of the world's largest oil producers may, however, have some strings attached to the bailout package. The terms may be as onerous as claiming stakes in some of Dubai's esteemed companies.