The FINANCIAL — The Dubai stock market surged over 10 percent as Dubai anounced on December 14 that it had received $10 billion from oil-rich Abu Dhabi to help it repay a $4.1 billion Islamic bond maturing on December 14.
The announcement ends weeks of speculation about whether Dubai would make good on the most immediately pressing of the obligations it incurred during years of freewheeling spending, according to The New York Times. The Islamic bond maturing Monday was issued by Nakheel, the property development arm of Dubai’s main investment vehicle, Dubai World.
Of the $10 billion Dubai is receiving from Abu Dhabi, $4.1 billion can be used to fulfill payments due on the bond, Dubai said in its statement, the same source reports. The emirate can use the remaining bailout funds to pay for interest and working capital expenses through April 30, so long as Dubai can negotiate a standstill on maturities of its other debts until May 30.
The Dubai stock market surged over 10 percent as it awoke to Dubai's fresh announcement, while the market in neighbouring Abu Dhabi opened up 7.07 percent, AFP wrote. "The government of Abu Dhabi has agreed to fund 10 billion dollars to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World," an official statement said.
"As a first action for the new fund, the government of Dubai has authorised 4.1 billion dollars to be used to pay the sukuk (Nakheel Islamic bonds) obligations that are due today," it added, according to the same source.
Stocks in Asia were also helped by the news. Japan's Nikkei average trimmed earlier losses to fall 0.2%, while Korea's Composite Stock Price Index, or Kospi, finished up 0.5% at 1664.77, its highest close since Sept. 30, as The Wall Street Journal reports. "This is very positive news, and will be welcomed relief to bondholders in particular," said Ali Khan, managing director at Arqaam Capital. "We are expecting a strong positive reaction to U.A.E. and regional markets."
Dubai has worked closely with the central bank of the United Arab Emirates (UAE) and the government of Abu Dhabi to find a solution to the debt problems, AFP informs. "Dubai World announced that it might not be able to commercially support its obligations," said the statement issued by Sheikh Ahmed bin Saeed al-Maktoum, the head of Dubai Supreme Fiscal Committee.
This included "addressing and assessing the impact of Dubai World on the UAE economy, banking system and investor confidence," it said, according to the same source. Rating agencies had downgraded several Dubai corporates after Dubai said on November 25 that it wanted to freeze debt repayments by its heavily-indebted Dubai World group — liable for 59 billion dollars — in order to restructure the largest state-run company.
The bonds, which had $3.52 billion principal, were the biggest maturity for a Dubai entity since global credit markets froze after the September 2008 collapse of Lehman Brothers Holdings Inc. Nakheel accumulated debt during a real-estate boom, when the sheikhdom borrowed $10 billion and its state-controlled companies $70 billion to help diversify the economy, Bloomberg reports. Nakheel’s maturing bonds traded at 53.5 cents on the dollar earlier today, according to Barclays Capital prices, up from 47 cents on Dec. 8.
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