Abu Dhabi has given Dubai $10bn that will be used to meet Dubai World’s sukuk obligations that are due today, 14 December.
“The Government of Abu Dhabi has agreed to fund $10 billion to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World,” says Sheikh Ahmad bin Saeed al-Maktoum, chairman, Dubai Supreme Fiscal Committee. “As a first action for the new fund, the Government of Dubai has authorised $4.1bn to be used to pay the sukuk obligations that are due today.”
On 24 November, Nakheel’s parent company Dubai World said it was seeking to negotiate a standstill agreement with its lenders while it sought to restructure its $26bn debt pile, which includes the $3.5bn Nakheel sukuk.
The announcement caused widespread panic in financial markets around the world as investors, fearing that Nakheel might be about to default on its debt, moved to limit their exposure to Dubai.
The support fund will use the remaining funds to support Dubai World. “The remaining funds would also provide for interest expenses and company working capital through April 30, 2010 – conditioned on the company being successful in negotiating a standstill as previously announced,” says Sheikh Ahmad.
The $10bn will also be used to meet financial obligations in the emirate, such as paying suppliers and contractors. “Today the Government of Dubai is announcing that the remainder of the funds provided will be used for the satisfaction of obligations to existing trade creditors and contractors. Discussions with affected contractors will begin in short order,” says Sheikh Ahmad.
Going forward, the government of Dubai plans to overhaul the emirate’s legal system in order to provide greater credit protection. “Today the Government of Dubai will announce a comprehensive reorganisation law, a framework that is based upon internationally accepted standards for transparency and creditor protection. This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations,” says Sheikh Ahmad.