DUBAI -- Abu Dhabi provided its flashy but debt-laden neighbor Dubai a US$10-billion lifeline to last its troubled flagship company until the end of April, heading off a bond default on payment day and sending Gulf markets higher.
Dubai World, the conglomerate at the center of a US$26-billion debt storm, still needs creditors to agree a standstill on a massive restructuring in order to get financial support to cover working capital and interest expenses.
And analysts said the emirate's troubles were not over.
"We've still got US$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?"
For now, Abu Dhabi has given Dubai World some breathing room. Some US$4.1-billion of the funds are earmarked to repay its property developer unit Nakheel's Islamic bond due for payment Monday -- potential relief for investors who had marked the bond's price down to less than half its face value at one stage last week.
"The (agreement is) on condition of the company being successful in negotiating a standstill previously announced with remaining creditors," a Dubai government source said in a conference call with journalists.
A government statement said the remaining funds would support Dubai World until the end of April next year.
Dubai also said it would set up a new bankruptcy law, similar to U.S. and British practices, and which would take effect immediately, in the event Dubai World needs to seek protection from creditors. The law is due to made available later on Monday.
"The fund will also be used for the satisfaction of obligations to trade creditors and contractors and discussions with contractors will begin shortly," said the source, who spoke by telephone and would not give his name.
Dubai World rocked global markets on Nov. 25 when it asked creditors for a standstill on US$26-billion in debt mainly linked to its two property firms, Nakheel and Limitless World.
"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 Riyadh. "That should bring in a lot of confidence. Basically Abu Dhabi is footing the bill.
"It will take time for the implications to unfold. I highly doubt this kind of money has no strings attached. There was no other choice for Abu Dhabi but to bail out Dubai. The (United Arab Emirates) federation would have been at stake."
Dubai's benchmark stock index led a surge on regional markets, jumping more than 10%, while Abu Dhabi rose 7% in early trading. The U.S. dollar jumped against the yen on the news, while Asian stock markets rebounded. U.S. S&P stock futures jumped 0.7%, reversing early losses, and European shares were also higher.
Abu Dhabi, the largest member of the United Arab Emirates and with most of the oil resources, had long been seen as a white knight for its heavily leveraged neighbor, Dubai.
Read more: http://www.nationalpost.com/news/story.html?id=2338219#ixzz0aGDVXdIu
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