First with Financial Comment from Arabia

Abu Dhabi’s Dubai rescue bonds total $21bn not $25bn

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Dubai Government yesterday clarified the position regarding the total amount subscribed from Abu Dhabi for bonds to ease the estimated $62 billion in debts owed by companies controlled by Dubai.

The $5 billion committed in November by two Abu Dhabi controlled banks was declared a part of a $10 billion December bailout and not an addition, so the total now stands at nearer $21 billion and not $25 billion as some reports had previously assumed, according to The National.

Bond billions

It says only $15 billion of that sum has been transfered to the Dubai Financial Support Agency, the agency formed last July to administer the allocation and repayment of such funds. Of that it is understood less than $1 billion has been drawn down.

Confusion arose about the total commitment. The figure of $10 billion came on December 14 when Abu Dhabi dramatically came to the rescue of what had become a debt crisis over the repayment of a $4 billion Nakheel bond.

However, the main issue was always whether Abu Dhabi would prove to be the lender of last resort for Dubai. With the credit lines open the precise amounts are not so important. Thus far it would appear Dubai was not as immediately in need of cash as feared.

If that situation changes then Abu Dhabi is obviously still going to standby by Dubai, although it is perfectly clear that Abu Dhabi wants the $22 billion Nakheel and Limitless debt standstill treated as a separate case with the end of April set for the rescheduling of these loans.

Real estate bust

Until then the long shadow of the debts left over from the Dubai real estate bust will remain. Shuaa Capital estimate that Dubai’s GDP fell by five per cent last year, and will see a smaller contraction this year as the legacy of bad debt and property oversupply is worked through.

However, UAE corporate profits in 2010 should bounce back by an aggregate of 17 per cent after an estimated contraction of 20 per cent in 2009, forecasts Shuaa, arguing that this leaves open the possibility of a stock market rally as stocks are ‘extremely cheap compared to Qatar, Saudi Arabia and other emerging markets’.

That said local investors are unlikely to pile into UAE stocks until they have a clearer view of what is happening about the Nakheel and Limitless debt situation and the prospects for real estate as oversupply increases. And with financial global markets looking ripe for a correction, the next move for local stocks is more likely down than up.


Written by Peter Cooper

January 19, 2010 at 9:00 am

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