Oil-rich emirate Abu Dhabi has announced it has helped out debt-laden neighbour Dubai to the tune of £6 billion in emergency funds to repay debts, including to existing trade and creditors contractors.
Embattled property division, Dubai World’s Nakheel, will use about £2.5 billion of the money to pay off an outstanding debt .
A key test of the debt-laden emirate’s creditworthiness has been its ability to repay those funds.
Support to local banks will be provided by the United Arab Emirates central bank, which is based in the federation’s capital, Abu Dhabi.
Dubai World’s interest expenses and general business needs through to the end of April will be paid off with the funds provided by Abu Dhabi. The fund will also be used to pay bills owed to “existing trade and creditors contractors”.
“The government of Dubai is particularly focused on addressing the concerns of Dubai World trade creditors within the emirate of Dubai,” Sheikh Ahmed bin Saeed Al Maktoum, chairman of the Dubai supreme fiscal committee said.
No details of the UAE bank support were provided, but a person close to the Dubai government said the central bank would inject liquidity into local banks in relation to their possible losses from Dubai World.
“The goal here is to provide a stable framework so we can provide a restructuring,” the person said.
Dubai also said it planned to announce a reorganisation law that could be used in case Dubai World was “unable to achieve an acceptable restructuring of its remaining obligations”.
ACE Chief Executive Nelson Ogunshakin said: “The commitment of $10bn is clearly an interim measure to resolve the problem of settlement of $4.1bn Sukuku or Islamic bond and to cover trade and Construction suppliers’ related unpaid fee.
“We are particularly pleased to know that Dubai will now be able to honour their payment obligations to the UK Consultants and engineers and we look forward to see this payment coming through on time to minimise the impact on suppliers business.
“There are lessons to be learned from this situation for anyone entering into contractual relationships with quasi sovereign backed private sector clients on how those contracts are dealt with when there are issues of default. We hope that in the future other organisations, in whatever country, bear those lessons in mind. ACE very much looks forward to a more stable situation in Dubai now that Abu Dhabi has made this decision,” he said.
Dubai created Dubai World - whose sprawling holdings range from ports to property and luxury retail - to diversify the small sheikhdom’s economy and boost its international clout.