Monday, December 14, 2009

Abu Dhabi Partially Rescues Dubai With $10bn Support

Stock futures have turned positive on news that the Abu Dhabi government is set to provide $10bn in financial support to Dubai to help repay short term obligations. Overnight markets were initially jittery as Nakheel's $4.1bn bond maturity loomed on Monday. Nakheel is the real estate subsidiary of Dubai World, the state backed entity that shocked the globe by announcing a $26bn debt restructuring (out of $59bn in total debt) around Thanksgiving. This partial rescue move by Abu Dhabi provides Dubai with some breathing room to work with creditors to restructure $26bn of the $59bn in total liabilities by Dubai World. If Nakheel had defaulted on its $4.1bn debt payment it would have triggered cross-default provisions on the rest of Nakheel and Dubai World debt. According to the Bloomberg report,

Abu Dhabi government provided $10 billion for Dubai’s financial support fund to help repay obligations, including the $4.1 billion needed for Nakheel PJSC’s Islamic bond maturing today. Dubai will use the rest of the money to pay “trade creditors and contractors as well as meet interest expenses and company working capital through April 30, 2010 - conditioned on the company being successful in negotiating a standstill as previously announced,” the Dubai government said today.
A recent report in the Economic Times revealed that Dubai owes Japaneses firms $7.5bn in uncollected bills. Presumably at least some of the remainder of Abu Dhabi's $10bn will be directed to paying off these creditors. According to the paper:
The Dubai government and its affiliated firms owe non-financial Japanese companies ~$7.5bn in [unpaid bills] that has not been collected since October 31, a study by the Japanese government showed. The study covered 18 projects that involved Japanese general contractors, trading companies and electric machinery manufacturers. The figure includes public works projects, such as subways and roads, commissioned by the Dubai government, it said. It does not include bank loans. It said some $1 billion of the accounts receivable have gone unpaid past their due dates, with some more than a year overdue. Some of the delay is blamed on disagreements about which party should shoulder the costs that have over-run initial estimates.

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