Monday, January 18, 2010

Dubai bail-out from Abu Dhabi less than thought


Dubai has revealed that half of its $10bn (£6.1bn) bail-out from Abu Dhabi was actually from a previous deal.

Abu Dhabi lent the money to its United Arab Emirates neighbour in December, averting a potential default that had severely rattled financial markets.

Dubai now says that the total included $5bn raised from Abu Dhabi in November.

The statement may raise further questions about the levels of transparency and disclosure from governments in the Middle East.

Without the bail-out, there were fears that debt-ridden Dubai would not be able to pay off what it owed.

That caused panic in the stock and bond markets as investors fled the government debt of other countries with large public debt - such as Greece.

'Not peaked'

A Dubai government spokeswoman said the emirate had used $1bn from the $5bn from the banks.

She declined to comment when asked if Dubai would ask for more funds.

"It is unlikely that Abu Dhabi's support has peaked just yet, and the probability of further balance sheet assistance is high," UBS economist Reinhard Cluse said.

When it was given the handout in December, Dubai used $4.1bn of the money to bail out the government-owned investment company Dubai World.

A Dubai World property subsidiary needed the money to pay investors in an Islamic bond which was due to its investors. In November, Dubai's government asked its creditors for a freeze on Dubai World's $26bn debt repayments.

Dubai's fellow emirate has helped its neighbour out in the past.

They are both are part of the seven-member UAE and their ruling families are from the same tribe.

But unlike Dubai, whose economy is largely a service sector one, Abu Dhabi has substantial oil reserves.

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