Monday 18 January 2010

Dubai's $10B Bailout From Abu Dhabi Shrinks

The $10 billion pledged to Dubai by Abu Dhabi last month included $5 billion perviously pumped into the debt-laden emirate by Al Hilal Bank and National Bank of Abu Dhabi (NBAD.AD), a spokeswoman for Dubai government said.

The new breakdown of funding contradicts previous statements issued by Dubai government, which is struggling to deal with more than $80 billion of total debts, on the terms of the financial support from oil-rich neighbor Abu Dhabi.

"This sends mixed signals about how much the government knows," said Anshuman Jaswal, analyst with Celent, a Boston-based consultancy firm owned by Oliver Wyman. "This isn't a healthy situation, to have uncertainty at this point. Investors won't see the situation in a positive light. If you have invested funds in Dubai you'd be slightly worried that the government doesn't have a plan."

Dubai said in November that Al Hilal Bank and National Bank of Abu Dhabi would subscribe to a $5 billion bond from Dubai's government, easing concerns that the emirate may default.

This was followed on Dec. 14 by a statement from Dubai government, which said 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."

The Dec. 14 statement went on to say that $4.1 billion would be used immediately to pay sukuk, or Islamic bond, obligations and that the remaining funds would be used to provide Dubai World with "interest expenses and company working capital through April 30, 2010."

On Dec. 16, U.A.E. Foreign Minister Abdullah bin Zayed al-Nahyan told Jordan's news agency Petra on the sidelines of a Gulf Cooperation Council summit that Dubai would have to pay back the money supplied to it by Abu Dhabi.

The Dubai spokeswoman, who declined to be identified because of government policy, told Zawya Dow Jones Monday that $4.9 billion of the total Abu Dhabi funding announced in December remained in place.

Dubai World is trying to agree a standstill on $22 billion of debt with creditors including HSBC Holding PLC (HBC), Royal Bank of Scotland Group PLC (RBS.LN) and Lloyds Banking Group PLC (LLOY.LN).

Philippe Dauba-Pantanacce, senior economist at Standard Chartered PLC said the "consensus of analysts was that the total amount of Abu Dhabi's 2009 Dubai bailout was $25 billion, not $20 billion."

In February last year, Dubai announced a $20 billion bond program. The country's central bank subscribed to half of the package. The funds were used to support the government's direct debt obligations, including fully and partly-owned government companies.

"The lesson from the crisis is that there's a margin of progression when Dubai government clears up a message or presents a plan," said Dauba-Pantanacce.END

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