Oil rich Abu Dhabi has provided Dubai World, the state-owned holding company $10 billion to meet some of its most pressing obligations.
Out of the total package which will be channelled to the Dubai Financial Support Fund, $4.1 billion will be used to cover real estate giant Nakheel’s payments for an Islamic bond that matured on Monday.
Dubai World will utilise the balance amount to cover interest expenses and working capital requirements till April 30, 2010, provided the company manages to successfully negotiate a ‘standstill arrangement’ with its creditors, a Dubai government statement said. “The statement shows that despite its commitment to Dubai, Abu Dhabi will not provide unconditional support. It will fund those companies in Dubai that are prepared to follow sound and sustainable financial principles,” an Abu Dhabi based investment banker, who did not wish to be named, told The Hindu.
The statement added that the funds that have been released will also be used to meet the obligations of Dubai World’s domestic creditors and contractors, based in Dubai. Besides, the central bank has expressed its readiness to step in to support local banks in the United Arab Emirates (UAE), should they face a liquidity crisis. Analysts say that the Abu Dhabi’s intervention has not come as a surprise for two reasons. First, the failure of the Dubai World to meet its financial obligations would have affected the national image of the UAE, having long term negative political and economic implications. Second, the cost of borrowing to fund Abu Dhabis own mega-projects would have surged, because the UAE is part of emerging markets, which would have been hit had Dubai World defaulted on its payments.
The government of Dubai is also set to announce a “comprehensive reorganisation law, a framework that is based upon internationally accepted standards for transparency and creditor protection,” the statement added. “This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations.”
According to the statement, Dubai’s ‘best days are yet to come’ and the city will “continue to be, a strong and vibrant global financial centre.”
Consul calls for Indian businessmen support
The Consul General of India in Dubai, Venu Rajamony, has called upon Indian businessmen to help infuse confidence in the Dubai economy, which was boosted on Monday by an infusion of $10 billion from the government of Abu Dhabi.
The Consul General urged the Indian community, especially the Indian businessmen, to do everything possible to support measures being taken by the UAE and Dubai governments to stabilise the economy. He said that for India, the UAE was a valuable economic partner, and ties between the two countries were intensifying in all fields.