Relief for Dubai as Abu Dhabi comes to the rescue

Abu Dhabi has committed $10 billion to help neighbouring Dubai meet is debt obligations, including its $4.1 billion Islamic bond, which matured today.

Abu Dhabi, the wealthiest emirate of the United Arab Emirates, has provided the Dubai Government with $10 billion in financing, part of which will be used to pay debts of state-owned Dubai World.

The capital injection will enable Dubai World to meet its most pressing debt obligation, a $4.1 billion Islamic bond which matured today, in addition to addressing further obligations of the ports and real estate conglomerate due in the near future.

The news of the capital support boosted stock exchanges in the region. It came as a relief after Dubai World made the opposite happen when last month it announced it would ask for six months relief on parts of its $60 billion debt position.

The capital support will be provided by the Abu Dhabi government and the United Arab Emirates central bank. Shiekh Ahmed Bin Saeed Al Maktou, chairman of the Dubai Supreme Fiscal Committee, said: “Recently, Dubai World announced that it might not be able to commercially support its obligations. Since that time, the government of Dubai has worked closely with the Abu Dhabi government and the UAE Central Bank in addressing and assessing the impact of Dubai World on the UAE economy, banking system and investor confidence.

He said: “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 is, and will continue to be, a strong and vibrant global financial center. Our best days are yet to come.”

In addition to the $10 billion provided by Abu Dhabi for the Dubai’s Financial Support Fund, the support will be filtered through to Dubai’s local banking network as well as provide payments for “interest expenses and company working capital” through to April 30, 2010. The state will also introduce a framework of best practices to help safeguard its economy for the future.

In a statement on the Nasqaq Dubai, Nakheel, the developer responsible for Dubai’s Iconic The World development, said: “Nakheel confirms that it will honour all obligations related to the 2009 Nakheel Development Limited Sukuk using funds that will be provided by the Dubai Financial Support Fund. In accordance with the terms of the Sukuk, the repayment will occur within the next 14 days.”

Dubai World also made a statement on the capital support. The conglomerate said: “The support provides funding and a stable basis for the restructuring process which continues.”