Coming to the rescue of the troubled fellow state, Abu Dhabi offered $10 billion to Dubai Financial Support Fund, to tide over the financial crisis imposed by the woes of the Dubai World, Dubai's flag bearer in global investments. Subsequently, the Government of Dubai authorized that $4.1 billion of this be used to pay the 'sukuk' obligations that are due today.
Dubai World had said on November 30 that it was in talks with major banks to restructure $26 billion of debt, including that of its subsidiaries Nakheel World and Limitless World. The company was seeking to delay maturities on total debts of $59 billion until at least May 30, 2010, including $3.52 billion of Islamic bonds due December 14 from its property unit Nakheel.
It was reported at that time that the Abu Dhabi-based Central Bank of the United Arab Emirates had offered local and international banks with debt exposure in Dubai additional liquidity facility. Further, the central bank stressed that it "stands behind" the country's local as well as international banks as they face losses from Dubai World's possible default. However, the bank then did not offer specific support to Dubai government, which was earlier this year bailed-out with a $10 billion loan from Abu Dhabi federal government.
In a statement, Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, announced today a slew of measures with regard to Dubai World. Sheikh Ahmad said the remaining funds from the $10 billion to the Dubai Financial Support Fund would be used to satisfy a series of upcoming obligations on Dubai World.
These include provision for interest expenses and company working capital through April 30, 2010, on condition that the company is successful in negotiating a standstill as previously announced. The remaining funds will also be used to satisfy obligations to existing trade creditors and contractors. Discussions with affected contractors will begin in short order, he added.
The central bank is also prepared to provide support to local UAE banks, Sheikh Ahmad said, adding that the Government of Dubai would announce Monday a comprehensive reorganization law, based upon internationally accepted standards for transparency and creditor protection. This law can be used if Dubai World and its subsidiaries are unable to achieve an acceptable restructuring of its remaining obligations.
On November 25, markets around the world had slipped after Dubai World said it was seeking to delay loan repayments. This had raised the prospects of rising loan losses for U.A.E. and foreign banks. Dubai World had $59 billion of liabilities as of August.
Following this, the Dubai government announced a restructuring of Dubai World and the government's decision posed a threat to investor confidence in Dubai, a Middle East financial hub. The process of restructuring began with the appointment of Aidan Birkett, Deloitte's managing partner for corporate finance, as chief restructuring officer to Dubai World. The company's major asset is DP World, the ports operator, which bought Britain's P&O.
Sheikh Ahmad said today, ''Like other global financial centers, Dubai has faced recent market challenges driven by global economic slowdown and severe real estate market correction...Today's actions, taken together, demonstrate our strong commitment as a global financial leader to transparency, good governance, and market principles. There will certainly be challenges periodically, just as there are challenges in other major financial centers around the globe. We believe today's actions will best serve the interests of all stakeholders.''
The government assured that Dubai would continue to be, a strong and vibrant global financial center.
The Asian markets, which traded lower for much of Monday's session, recovered and cut most of their losses or moved into positive territory in reaction to the news. After showing marked weakness due to the yen's strength and a mixed Tankar survey report, Japan's Nikkei 225 average cut most of its loss and ended down merely 0.02%. At the same time, Australia's All Ordinaries closed up 0.36%, China's Shanghai Composite Index up 1.71% and South Korea's Kospi up by 0.47%. Encouraged by the development, the European averages are also trading higher. Crude oil futures have also trimmed some of their early session losses and are trading down $0.26 at $69.61.
For comments and feedback: editorial@rttnews.com