Money Matters, Simplified.
Abu Dhabi's $10 billion magnanimity towards Dubai
by Jamie Anderson - December 14, 2009 - comments
Abu Dhabi has given a crucial and essential lifeline of $10 billion to its neighbor Dubai. Not many people expected this kind of help from the white knight (Abu Dhabi) for its heavily leveraged neighbor (Dubai).
Dubai, December 14 -- Thanks to Abu Dhabi, Dubai World (DBWLD.UL), the state-owned holding company at the center of a $26 billion debt storm, has some breathing space.
Abu Dhabi, the capital and the second largest city in the United Arab Emirates, has given its flamboyant but debt-laden neighbor Dubai $10 billion to restructure debt, which has come as a reprieve to the latter.
Last month, Dubai ruler Sheikh Mohammed bin Rashid Al-Maktoum had asked people who doubted the unity of Dubai and Abu Dhabi, to “shut up”. The latter’s timely help proves that there is definitely some truth in what the ruler said.
Much needed succor
The aid will enable Dubai World repay its debt, including the $4.1 billion Nakheel’s Islamic bonds due for payment Monday.
Stating that Abu Dhabi’s gesture will pull Dubai out of the financial quagmire, Rabih Sultani, a fund manager at Duet Mena Ltd said, “This is terrific news.”
“The support covers the upcoming Nakheel maturity, it tackles most of Dubai’s longstanding concerns, including support to the banking system, outstanding trade and contractor dues, and most importantly, it confirms the one nation policy,” noted Sultani.
Dubai World had, on Dec. 1, rocked global markets when it said that it intended to streamline $26 billion of debt and asked creditors for extension in payback. The debt was primarily linked to its two property firms, Nakheel and Limitless World.
The Dubai government said that it will use the funds to disburse payments towards trade creditors and contractors and also meet “interest expenses and company working capital through April 30, 2010 -- conditioned on the company being successful in negotiating a standstill as previously announced.”
Not the end of woes
Many analysts, however, feel that the troubles for Dubai are far from over.
A circumspect John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole in Riyadh said, "It will take time for the implications to unfold. I highly doubt this kind of money has no strings attached.”
“There was no other choice for Abu Dhabi but to bail out Dubai. The (United Arab Emirates) federation would have been at stake," he added.
Officially, there was no indication whether the bailout came with riders or not. Rumor mills were rife that Abu Dhabi would ask for a stake in Emirates airlines, Dubai’s most prized asset, in return of the favor extended.
"This is a government to government fund, the terms of that fund are internal to the government of Abu Dhabi and Dubai," a Dubai government source said, asserting that there were no strings attached.