Of course a few rumblings that this is not enough, but it really should be. Everyone has been sobered up and will now pay attention to making this something other than the Guinness record holder of finest collection of white elephants.
stood up is no surprise and probably they had no good choices. There is no way a fully executed insolvency could have been contained, so it had to be put behind a ten billion fire wall. That should restore general confidence while the lenders surrender a haircut and we all live to borrow another day. Abu Dhabi has been thoroughly humbled and will need to be more circumspect until they have paid of the loans and also put it all on a believable footing. This was actually one disaster that had to have a happy ending. However, it you are a holder of real estate you may have a very long wait. Dubai
Abu Dhabi throws Dubai a lifeline, terms uncertain
Amran Abocar and Rachna Uppal
Mon Dec 14, 2009 4:32pm EST
DUBAI (Reuters) - Abu Dhabi threw its flashy but debt-laden neighbor Dubai a $10 billion lifeline to head off a bond default, cheering Gulf and global markets on Monday but raising questions about the undisclosed terms.
The surprise rescue enables
World to repay a $4.1 billion Islamic bond its property developer unit Nakheel was due to honor on Monday. Dubai
The cost of insuring
's debt against default fell sharply on the news, and the stock market in the glitzy emirate rose 10.4 percent, its biggest one-day gain in 14 months. Dubai
Abu Dhabi, Saudi Arabia and also recovered on relief an immediate crisis had been averted. Qatar
The bailout marked a spectacular double policy shift. Dubai last month declined responsibility for Dubai World's debts, and conservative Abu Dhabi, which produces 90 percent of the United Arab Emirates' oil exports, had given no hint that it would ride to the flamboyant business hub's rescue.
However, credit ratings agency Fitch Ratings said
Abu Dhabi's support was only "a tactical step to permit an orderly restructuring of obligations within to continue." Dubai
Dubai government statement said the remaining $5.9 billion not used to pay the Nakheel bondholders would support World until the end of April next year. Dubai
But the conglomerate at the center of a $26 billion debt storm still needs creditors to agree a standstill, and a massive restructuring, in order to get financial support to cover working capital and interest expenses.
Statements from Nakheel and the
government indicated the Nakheel bondholders would be paid unconditionally. However a Dubai government source made clear other lenders would only receive interest payments if they agreed to the debt standstill. Dubai
Analysts said the emirate's troubles were far from over. They questioned a statement by a
government source that there were no conditions on the loan beyond the debt standstill. Dubai
"We've still got $35 billion due in bonds, loans and repayment over the next couple of years, so this is only one thing," said Saud Masud at UBS. "The big question is how are they are going to do this next step?"
LOAN OR GRANT?
Loans worth a total $3.7 billion to DW unit Limitless World and to Borse Dubai, 60 percent owned by state-owned Investment Corp. of
, fall due before the April timeline. Dubai
Separately, a Japanese government study showed the
government and affiliated firms owe non-financial Japanese companies roughly $7.5 billion in credit that had not been collected as of October 31. Dubai
Neither emirate made clear whether the bailout was a loan or a grant.
government source, who would not give his name, told journalists on a telephone conference call there was "no conditionality". He also said the terms were "internal" to the governments involved. Dubai
Among issues on which
Abu Dhabi might seek concessions are Dubai's trade with , the future of its Emirates airline, and its freewheeling nightlife in a conservative Muslim region. Iran
Abu Dhabi and Washington have pressured Dubai to take a tougher line on , one of its main trade partners. Iran
Upping pressure for a debt restructuring,
Dubai announced it would implement immediately an insolvency law modeled on U.S. and British practices in the event World needs to seek protection from its creditors. Dubai
A government statement said this was necessary because
World's existing structure did not allow it to seek protection from creditors. Dubai
"This is kind of above and beyond what people expected. It is a crucial and essential lifeline," said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole in
. "That should bring in a lot of confidence. Basically Riyadh is footing the bill. Abu Dhabi
"I highly doubt this kind of money has no strings attached. There was no other choice for
Abu Dhabi but to bail out . The ( Dubai ) federation would have been at stake." United Arab Emirates
The price of Nakheel's $750 mln January 2011 bond leapt to 64/68 cents in the dollar from Friday's close of 40.
traders said prices were not longer being quoted for the larger $3.52 billion bond that was due Monday, and which traded below 50 last week. The U.S. dollar jumped against the yen, while Asian stock markets rebounded. U.S. S&P stock futures jumped 0.7 percent, reversing early losses, and European shares were also higher. London
Speaking on a telephone conference call in which his identity was not disclosed to reporters, the Dubai government source said the restructuring process could include asset sales, but they would be confined to Nakheel and Limitless, excluding Istithmar World assets, which owns U.S. luxury retailer Barneys, or port operator DP World.
The property unit's assets included man-made islands shaped like palms and a map of the world in
Dubai, as well as mixed-use real estate projects in Indonesia and . Malaysia
The UAE central bank said it would back local banks who have exposure to
World. Dubai World said it would continue to work with creditors to negotiate a standstill in an orderly way. Dubai
(Additional reporting by John Irish, Thomas Atkins, Inal Ersan, Nicolas Parasie, Rachna Uppal, Jason Benham, Martina Fuchs, Luke Pachymuthu and Rania Oteify; Writing by Amran Abocar andPaul Taylor; Editing by Andrew Hay)