What a difference a week makes

We had all been waiting with baited breath for a clear sign that the UAE would adopt a 'one country' approach to dealing with the global economic turmoil.

The central bank's decision last week to subscribe $10bn to Dubai's $20bn bond launch, to meet financing requirements and continue the emirate's ambitious development programme, was that signal.

The deputy chairman of the UAE Central Bank, Dr Omar Bin Sulaiman, says that Dubai will not need to issue the second tranche of the bond for another two or three years, and has sought to allay media speculation that Dubai might be unable to meet its commitments.

Estimates of those commitments vary - according to a Moody's note earlier this month, Dubai's mostly government-linked issuers will have to refinance about $15bn in 2009; EFG-Hermes says between $9bn and $12.8bn over 2009-10; Fitch plumps for $11bn.

But whichever figure is more accurate, it is a prospect that looks considerably less daunting in the wake of last week's announcement.

Some observers remain skeptical that the remainder can be raised on the open market, and an EFG-Hermes note last week suggested that the other $10bn "will most likely be subscribed by federal or other high net-worth sources". This theory is aided and abetted by the fact the five year bonds will pay a fixed four percent interest per year - an attractive rate in today's climate.

But although we don't yet know who will be eligible to buy the bonds, and we don't yet know when they will be issued, the fact that they are on the way has silenced at least some of the rumours ricocheting around the emirate and being granted credence abroad.

There has been an immediate, positive effect on sentiment, and this renewed investor confidence has been reflected on the bourse.

At the DFM - already enjoying life after mother company Borse Dubai managed to find funds to finance a $2.6bn loan that was due in February - investors saw the biggest one day gain in three months, the index leaping almost eight percent on Feb 23, the day after the bond announcement.

Of course, it will be interesting to see if this rally can be maintained as new information is disclosed, particularly with regard to the use of the funds raised. Within days of the announcement Nasser Al Shaikh, the director general of Dubai's Department of Finance, said that real estate companies, laid low after a six-year boom, would be among the main beneficiaries of state aid.

Even after last week's move, no-one doubts that Dubai's economy is facing serious challenges in the wake of the credit squeeze and property market slump. The sad truth is that in the immediate future at least, people will continue to lose their jobs, default on their mortgage payments, and book flights home.

The current turmoil will take time to set right, but then this is a global slump - name me somewhere that's not feeling the pinch - and at least the fundamental creditworthiness of Dubai Inc has been reassured by the clear financial support the emirate receives from the federal government. A week ago, we could not have said that.

Andrew White is the editor of Arabian Business English.

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