Abu Dhabi to underwrite Nakheel bonds due today

The Gulf is so much more exciting. Abu Dhabi today announced a $10bn injection to a fund for younger brother Dubai. The first action for the fund will be a $4.1bn payment of Nakheel sukuk obligations due today. No carefully timed, carefully worded press releases to minimise market shock: a slam dunk, last minute rescue. Phew!

Stocks around the world have risen, but S&P said it was unlikely they would raise ratings of the six government-related entities downgraded on December 2 (Bloomberg).

A summary of the support from Abu Dhabi and the UAE central bank:

1. Abu Dhabi adds $10bn to Dubai Financial Support Fund, will be used to satisfy a series of upcoming obligations on Dubai World:

a. Fund’s first payment is $4.1bn to satisfy Nakheel sukuk obligations, due todayb. Fund will also provide for interest expenses and working capital to April 30, 2010 conditional on Dubai World successfully negotiating a standstillc. To help creditors within Dubai, the remainder of funds will be used to satisfy local obligations

2. UAE Central Bank to provide support to local UAE banks;

3. Government of Dubai will today announce a comprehensive reorganisation law based on international accounting standards. The law will be used if satisfactory restructuring is not possible.

A source close to the Dubai government said earlier on Monday the central bank would be there to inject liquidity as needed into banks that face exposure to Dubai World.

The central bank set up a special emergency facility last month to support bank liquidity in response to Dubai’s debt woes, which had threatened to damage lending and derail economic recovery. The special facility has been left open-ended.

“Our best days are yet to come,” said the Dubai government statement.

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