By Andy Sambidge
UPDATE 6: Cash injection will enable repayment of $4.1bn Nakheel sukuk bonds due on Monday.
The government of Abu Dhabi and the Central Bank of the UAE has announced that it has agreed to provide $10 billion to the Dubai Financial Support Fund, allowing Dubai World to repay $4.1 billion of Islamic sukuk bonds that are due to be paid on Monday.Sheikh Ahmad Bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee, confirmed the financial agreement in a statement.
He also announced that Dubai government would use some of the funds provided "for the satisfaction of obligations to existing trade creditors and contractors", adding that discussions with affected contractors would begin soon.
He said that despite the restructuring of $26bn of Dubai World debt, the emirate would "continue to be, a strong and vibrant global financial centre".
The deal will also see the UAE central bank injecting liquidity as needed into banks that face exposure to Dubai World.
He added: "Like other global financial centers, Dubai has faced recent market challenges driven by the global economic slowdown and a severe real estate market correction.
"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."
Sheikh Ahmed said: "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.
"As a first action for the new fund, the Government of Dubai has authorised $4.1 billion to be used to pay the sukuk obligations that are due today.
"The remaining funds would also provide for interest expenses and company working capital through April 30, 2010 - conditioned on the company being successful in negotiating a standstill as previously announced.
Sheikh Ahmed also said that Dubai would announce a comprehensive reorganisation law, a framework that is based upon internationally accepted standards for transparency and creditor protection.
"This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations," he said.
"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."
He added: "Our best days are yet to come. The Government of Dubai remains committed to its high standards and its obligations. We are confident in our economic model, and we are confident in the long-term health and outlook for our economy."
Separately, Nakheel said in a statement 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, it said in a statement posted on the Nasdaq Dubai website.
This is great news, It just shows that all the doom and gloom in the international press was wide of the mark. While there is still a huge amount of work to be done to sort out the mess in Dubai, The world will know that the UAE is united.
At last some positive news, and indeed a great move from abu dhabi to support our dear Dubai. God bless our leadership!
All this means is that Dubai World has gone further into debt! It's merely postponed its problems instead of fixing them.
Quoted from the above article: "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." On reflection, there are so many ways you can read this quote...timing of the initial DW announcement to restructure, market impact, aftermath of announcement, Dubai distancing itself from DW and now the $10bln bail out from Abu Dhabi which really does have to be applauded. If nothing else it shows Abu Dhabi to be a true protectorate of the UAE and its people. It does have all the cash but that does not detract from the fact that they have stepped up and helped its neighbour...not all 'families' would do the same thing.
Mr Jeep. I agree with what you have said. What it has shown the world is tha there is a united front between Abu Dhabi and Dubai and that we do live in a United Emirate. Dubai unfortunately cannot distance itself from the issues of the Dubai World debt no matter what it says. Over the past number of years it has allowed the assumption to be made that they were all government backed, even if it was deliberate of not that is the perception people had. There are billions owed here locally by companies within Dubai world and this needs urgent attention. I really hope that they can start to address these issues and get back to sorting out the repayment structure of the debts. To those who were jumping up and down on the grave of dubai...tough luck. I for one hope they can sort it out and we can move forward because as an EXPAT i have no alternative.....if Dubai fails its home for me and a life on welfare....so unlike other expats who are delighting in its demise....I am rooting for the powers that be to ensure i remain gainfully employed.
Its very strange to see the below postings. Why these guys are aginst dubai. Why these guys are not focusing on other countries like UK and US. They dont have debts? only dubai has debt?. Its effected everywhere. From the below comments i feel rediculous to those people who are putting negative comments about dubai. We have to appreciate dubai govt for taking good decisions on clearing the debts bringing back the fame. What i strongly beleive is all happening because of the media's wrong assumptions. Let dubai go forward and make good come back in full force.
I think this is a great step by UAE. They have once again stated that they stand together not only in great times but also difficult times. I think this should have been announced a little earlier than to keep everyone guessing till the last minute. Especially the media, which was using the chance to write off Dubai. The bankruptcy law was long overdue in UAE. This would have prevented a lot of people from running away leaving huge debt piles and further hurting the UAE banks.. Well Done UAE.. Keep the support spirit and no part of UAE will be hurt. Dubai will get back to action soon.. probably taking it a little slower this time..
The debt problem on the way to be resolved. Abu Dhabi has made its desicion to help Dubai and this will be enough to rescue Dubai. This is not another debt like others have commented; it is grant between brothers. Dubai will never be asked to pay back its big brother and this what will happen. It will only enforce the unity and strength of the UAE. The late Sheikh Zayed God rest his soul, was always helping the other Emirates and many other Arab Countries including my own country Palestine. Sheikh Khalifa is no exception and he was always a giving person to others. Today he came to help his own brothers. Dubai will come back strong in few years, be sure of that.
you are absolutely right Manama..this is a clear slap on the western media who was bent on negative publicity for Dubai..Indeed it is a free grant from the elder brother to his younger brother...like everywhere elae, it is just a family affair...there is no question of payback...after all we are one country...long live dubai and abu dhabi
Its a brotherly gesture from the top management headed by Shk. Khalifa Bin Zayed Al Nahyan to his own brothers. When Abu Dhabi can invest billions in sovereign funds elswhere, why not make its own garden glow with flowers and fruits. Its a big lesson to West not to under estimate brotherly love between 7 emirates and amongst 6 GCC states. Once again lets pray to Almighty Allah to protect this unity for ever.