Dubai, December 15: Abu Dhabi government on Monday, December 14, offered indebted Dubai World $10 billion in a surprise aid that immediately took stock markets up.
“The government of Abu Dhabi has agreed to fund 10 billion dollars to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World,” Dubai government said in a statement.
Dubai said it will pay 4.1 billion dollars to cover Islamic bonds issued by its Nakheel property developer which mature Monday.
Nakheel said it would repay the bond over the next two weeks.
The excess funds would be used to help government-controlled holding company Dubai World up until the end of April 2010.
“The (agreement is) on condition of the company being successful in negotiating a standstill previously announced with remaining creditors,” a government source said in a conference call with journalists.
“The fund will also be used for the satisfaction of obligations to trade creditors and contractors and discussions with contractors will begin shortly.”
The bailout move was the least expected of all options on the table after Dubai World requested a standstill on $26 billion in debt on November 25.
The once rapidly-booming economy of Dubai has been hit hard by the global financial crisis, which turned off the tap on easily-available foreign finance, leaving many of its companies high and dry with a heavy debt burden.
The total debt of Dubai government and its state-run companies is a minimum of 80 billion dollars, and estimated to run into 100 billion dollars.
Abu Dhabi, leading partner in the seven-emirate union that makes up the United Arab Emirates, appears unwilling to let Dubai sink.
Two Abu Dhabi-controlled banks had subscribed last month to a five-billion-dollar bonds package issued by the government of Dubai.
The UAE central bank had also fully-subscribed to a 10-billion-dollar bond issuing in February, earmarked to help Dubai sort its debt problem.
Good News
The good news coming from Dubai immediately took stock markets up in many parts of the world.
“The Abu Dhabi support for Dubai World is good news and relieves some of the worries,” Bernard McAlinden, market strategist at NCB Stockbrokers, told Reuters.
“Banks will probably do better on the Dubai news.”
The Dubai Financial Market index gained 172 points to 1,867.01, with all sectors in the green and property giant Emaar surging by a full 15 percent, the maximum allowed in a session.
The Abu Dhabi market also performed strongly and was trading at 2809.67 points, up 7.49 percent.
Europe’s main stock markets rallied at the start of trade on Monday effected by Dubai bailout news.
The FTSEurofirst 300 index of leading European shares was up 0.9 percent at 1,018.71 points.
HSBC, Standard Chartered, Banco Santander, Barclays and Lloyds Banking Group were up 1.6 to 5.3 percent.
London’s benchmark FTSE 100 index also gained 1.12 percent to 5,320.29 points.
Frankfurt’s DAX 30 won 0.81 percent to reach 5,803.20 points.
In Paris the CAC 40 also climbed 0.81 percent to stand at 3,834.54.
-Agencies