Dubai Gets $10b Capital Support

Shaikh Ahmad bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, said in a statement that the new funding for the Dubai Financial Support Fund would also take care of interest expenses and working capital requirements through April 30, 2010, on the condition that Dubai World succeeds in negotiating a debt repayment standstill with its creditors as it had

We Can Do It Global crisis or not, Dubai has done it again. It has once again shown the world, beyond doubt, its ability and willingness not only to meet its obligations but any challenge to its unrivalled status as the most dynamic global financial and trading hub in the Gulf region. The Government of Dubai on Monday stepped in to make a full repayment of the Nakheel 2009 sukuk, $4.1 billion in all, and assured that it will also address the concerns of Dubai World’s trade creditors and contractors. Monday’s events also remove any doubts about Abu Dhabi’s commitment to Dubai’s success and prosperity, and will hopefully put an end to groundless speculation about the Federation’s unity. The unrelenting support from the Government of Abu Dhabi and the UAE Central Bank will go a long way to show that they are fully committed to Dubai’s economic ambitions and to the nation’s financial stability. Sceptics were taken by surprise as they saw investors worldwide greeting the development with an aggressive rally in stocks and risk appetite. Local stock markets hit their upper limits and trading was brought to a virtual standstill as investors were unwilling to let go of UAE assets. What more evidence is needed to satisfy the concerns of those who doubt the long-term viability of Dubai’s economy? Countries across the world have had their fair share of financial stress as a direct consequence of the global credit crisis and the downturn that followed. And all of them are dealing with it in their own way and within the resources available. Some of the crisis management strategies being employed will be conventional and others will be exceptional and, as such, may not favour all stakeholders. But most stakeholders realise that making profit out of a crisis of this scale would be imprudent, as it could put to risk long-term potential of companies and economies. Dubai and some of its companies have their own economic and financial challenges, which include paying off a rather large debts and contractual obligations. What Dubai should and is trying to make sure is that the devices and strategies it adopts do not compromise the long-term viability of its economy and its corporate sector. Most of Dubai’s creditors and investors understand this and appear to be responsive to any debt or corporate restructuring proposed by the government or local commercial entities. The global reaction to Dubai’s debt management efforts confirms that a lot is at stake. Credibility of all stakeholders and market makers and sustainability of the global economic recovery is at endangered if a major risk event unfolds. The synthesis of the global discussion after Dubai World’s November 25 standstill request is that it is in the interest of all parties involved to ensure that Dubai succeeds with its debt management plan and continues to prosper as a strategic trading and financing hub for the Gulf region and build on its strength in areas like re-export, logistics, shipbuilding and tourism. - Editor, Khaleej Times

previously announced. He said funds will also be provided to satisfy Dubai World’s obligations to its trade creditors and contractors, discussions with whom will begin soon.

Shaikh Ahmed, who also heads the Emirates Group, said the move was part of a “comprehensive set of actions” agreed with the government of Abu Dhabi and the UAE Central Bank in response to challenges faced by Dubai due to the global economic slowdown and severe real estate market correction.

“The actions taken today are consistent with our market development, and we believe they are the actions that will best serve the interests of all stakeholders,” he said.

In response, the Dubai Financial Market stocks index climbed 10 per cent, the most in 14 months, leading a worldwide rally in equities that drove the MSCI World Index up 0.4 per cent. Dubai World on November 25 had announced that it might delay debt repayments and sparked a stock market selloff in the UAE and globally, with Europe witnessing its worst rout since April.

Shaikh Ahmed said since that announcement, the Government of Dubai had worked closely with the Abu Dhabi Government and the UAE Central Bank addressing and assessing the impact of Dubai World on the UAE economy, banking system and investor confidence. He said the discussions led to the Government of Abu Dhabi agreeing to fund $10 billion to the Dubai Financial Support Fund that would be used to satisfy a series of upcoming obligations on Dubai World, and the Central Bank providing support to local UAE banks with exposure to Dubai World and its units.

“Today’s actions, taken together, demonstrate our strong commitment as a global financial leader to transparency, good governance, and market principles. There will certainly be challenges periodically, just as there are challenges in other major financial centers around the globe. We believe today’s actions will best serve the interests of all stakeholders,” he said.

The UAE Central Bank in a separate statement said that it had been in consultation with Dubai Government over the last two weeks, and that it was pleased to see the announcement regarding Nakheel Sukuks. “Central Bank of the UAE reaffirmed its position that it stands behind UAE banks, including those with exposure to Dubai World and Nakheel,” the statement said.

Shaikh Ahmed said that the Government of Dubai would like to reassure investors, financial and trade creditors, employees, and its citizens that all its actions would conform to internationally accepted business practices and market principles. “Dubai is, and will continue to be, a strong and vibrant global financial center. Our best days are yet to come,” he said adding that Dubai remains committed to its high standards and its obligations and is confident in its economic model and the long-term health and outlook for the economy.

ovais@khaleejtimes.com

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