“For the general purposes of the Dubai Financial Support Fund…”

As FT Alphaville noted the market was on Wednesday digesting news that the $5bn Dubai had raised from two Abu Dhabi government-controlled banks would not go to paying o
ff Nakheel convert bond holders as expected. Instead the proceeds would go towards the general purposes of the Dubai Financial Support Fund (DFSF).

The DFSF is the support fund created at the onset of the crisis in the Emirates to support the liquidity needs of key government-related entities (GREs). It is being financed by the government’s $20bn debt programme announced in March, of which the $5bn raised on Wednesday was the latest tranche.

The reason why Dubai sovereign CDS markets have been rumbled by the news might very well be connected to the fact that the overall size of the fund’s GRE liabilities has never officially been disclosed.

The likes of Barclays Capital, meanwhile, estimate the liabilities could be as much as $72bn, a figure that runs significantly beyond Dubai’s own ability to refinance without support from Abu Dhabi.

In other words, there’s no telling how big the total hole Dubai has to plug is, much less its strategy for doing so, and more importantly how Dubai World bond holders — the government-owned group which owns Nakheel — rank in the fund’s priorities.

On the latter, the indication from today’s news is that they don’t rank highly at all.