Monday, 14 December 2009

Abu Dhabi bails out Dubai

Source: Sydney Morning Herald
Abu Dhabi has stepped in to help fellow United Arab Emirates member Dubai with a $US10 billion ($10.9 billion) injection, of which $US4.1 billion was allocated to troubled state-owned conglomerate Dubai World to pay immediate obligations.
The move was the least expected of all options Dubai had on the table after requesting a standstill on $US26 billion in Dubai World debt on November 25, alarming markets and shaking the image of the emirate as a regional business hub.
"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," the chairman od the Dubai Supreme Fiscal Committee said this afternoon in a statement.
"As a first action for the new fund, the government of Dubai has authorised $US4.1 billion to be used to pay the sukuk obligations that are due today."
The local sharemarket jumped on the news, with the benchmark S&P/ASX200 adding 0.4 per cent to close at 4654, after only minutes earlier having hit the day’s low of 4608 points.
S&P futures jumped to be up 0.7 per cent, reversing early losses and pushing Treasury futures to session lows. Hong Kong's Hang Seng index shot up 300 points in the last minutes of morning trade to finish in positive territory, while other markets across Asia also pushed higher.
Abu Dhabi is the largest member of the United Arab Emirates federation and a big oil exporter.
"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," Sheikh Ahmed bin Saaed al-Maktoum said in the statement.
"Dubai is, and will continue to be, a strong and vibrant global financial center. Our best days are yet to come."
Excess funds would be used to cater to Dubai World's needs up until the end of April 2010, the statement said.
Dubai has announced a bankruptcy law that it said could be used in case Dubai World and creditors failed to reach an agreement on debt maturing in the future.

"Dubai will announce a comprehensive reorganisation law, a framework that is based upon internationally accepted standards for transparency and creditor protection," Sheikh Ahmed said.
"This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations."

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