Abu Dhabi steps in with $10 bn to bail-out Dubai World
Peer emirate Abu Dhabi and neighbour had a pleasant surprise for the financial world Monday, stepping in with a $10 billion bail-out offer for Dubai World that is caught in a multibillion dollar debt crisis.
"The Government of Abu Dhabi and the UAE Central Bank have agreed to provide important support," said Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee.
He is also the uncle of Dubai's ruler Shaikh Mohammed bin Rashid al-Maktoum.
"Specifically, 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," his statement said.
As part of the $10 billion package, $4.1 billion will be allocated to Dubai World to take care of its immediate debt obligations. It said USD 4.1 billion of the money will be used to pay off the debt from Dubai World's Nakheel property division that are due today.
State-run Dubai World had Nov 25 stunned the global financial markets with a debt restructuring announcement. It had said it needed time to repay about $26 billion of debt sending jitters down the global financial world.
In his statement, the supreme fiscal committee chairman said the remainder of the funds provided will be used to meet the obligations to existing trade creditors and contractors.
"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."
Dubai's woes started with its booming real estate industry going bust at the start of 2008. With prices falling sharply, the emirate found its project finding not many takers or not as profitable.
The sudden declaration by the government asking creditors to wait up to six months sent the financial world into a tizzy, as the real estate boom was heavily backed by foreign funds especially European banks such as RBS and Standard Chartered.
Sheikh Al Maktoum said the UAE central bank, based in Abu Dhabi, is also prepared to support local banks.
He said the remaining funds would be used for interest payments and working capital of Dubai World through April 30, 2010 on condition that the company successfully negotiates a standstill agreement with creditors as earlier announced.
On November 25, the Dubai government said the state-run holding company is seeking a "standstill" agreement on its debt, including for the Nakheel unit.
Al Maktoum said the government of Dubai would announce a comprehensive reorganisation law, a framework that is based on internationally accepted standards for transparency and creditor protection.
