Abu Dhabi Bailout Stabilizes Dubai Finances

Abu Dhabi Bailout Stabilizes Dubai Finances
Photo: Anne M. Eberhardt
Sheik Mohammed

DUBAI — Dubai will receive a $10 billion bailout from neighboring emirate Abu Dhabi to pay part of the debt held by the state-owned conglomerate Dubai World, according to the Wall Street Journal.

Of the amount, $4.1 billion will be used to repay Dubai World’s real-estate unit Nakheel’s Islamic bond, or sukuk, that matures Dec. 14. The remainder of the funds will be used to finance Dubai World’s needs up until the end of April 2010. Abu Dhabi’s bailout brought stability back to the regional stock markets, which had been rocked by news in November that Dubai World wanted a freeze on $26 billion in debt repayments in order to restructure what it owed.

“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, chairman of the Dubai Supreme Fiscal Committee, said in a statement.

What would happen with sukuk had been seen by analysts as a test of the emirates' ability to cover its debt, so the action by Abu Dhabi helped Nakheel’s 2011 bonds jump 39 to 40 points to trade at 79% of face value, the Journal reported.

“As long as a standstill is successfully negotiated, Dubai World has assurances that the Government of Dubai...will provide financial support to cover working capital and interest expenses to ensure the continuity of key projects,” the conglomerate said in an emailed statement.

Abu Dhabi is the largest of the seven emirates that formed the United Arab Emirates in 1971 and owns more than 90% of its oil reserves, the world’s sixth largest. Dubai, the second-largest emirate, has traditionally guarded its autonomy, keeping full control of economic affairs. After the emirate and its state-controlled companies borrowed $80 billion to diversify away from dwindling oil supplies, Bloomberg reported that Dubai’s ruler, Sheikh Mohammed Bin Rashid Al Maktoum, has been forced to seek Abu Dhabi’s help three times this year as the global financial crisis dried up credit and triggered a property crash in the city state.

Sheikh Mohammed, and his family are also major players in the worldwide Thoroughbred auctions and breeding markets. Sheikh Mohammed’s Darley breeding operation stands stallions in six countries with 15 stallions located at his farm near Lexington. At auction in 2009, Sheikh Mohammed’s bloodstock agent John Ferguson purchased 111 yearlings in the North America and Europe worth more than $46,782,000. The financial crisis had not been expected to substantially affect any of Sheikh Mohammed’s Thoroughbred holdings because these business don’t have any ties to Dubai World.

“The restructuring of Dubai World has nothing to do with Sheikh Mohammed’s Thoroughbred racing interests, as they are private,” Ferguson told the Financial Times earlier this month.

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