James Ashton November 29, 2009
Abu Dhabi is this weekend putting together a rescue package for Dubai, its debt-laden Gulf neighbour, in an attempt to restore calm in panicked international markets.
As capital of the United Arab Emirates (UAE), Abu Dhabi played host yesterday to a private meeting of Gulf officials to thrash out a response to the crisis. The summit came three days after Dubai stunned the global financial community by admitting that it could not meet its interest repayments.
An Abu Dhabi official said yesterday it would “pick and choose” how to assist its neighbour, a hint that the restructuring of Dubai’s debts may not be straightforward. “We will look at Dubai’s commitments and approach them on a case-by-case basis,” the official said. “It does not mean that Abu Dhabi will underwrite all their debts.”
The offer of help reduces the chances of Dubai being declared bankrupt, a step economists say would threaten the global recovery.
The bankers drafted in this weekend to advise Dubai say they now expect a speedy sale of some of its most high-profile assets, such as the QE2 cruise liner and the Turnberry golf course.
On Wednesday, Dubai asked lenders for a six-month breathing space on loans to Dubai World, the largest government-owned company. It has loans of $59 billion (£36 billion) spread among 90 banks, including a $3.5 billion bond at its property arm, Nakheel, which matures on December 14.
Dubai officials, including Abdulrahman al-Saleh, the director-general of Dubai’s department of finance, attended yesterday’s meeting. It is thought that Sultan bin Nasser al-Suwaidi, governor of the United Arab Emirates Central Bank, was also present. The UAE is keen to prevent a string of defaults at local banks, which have large exposures to Dubai World.
“They are working on measures to limit the systemic risk to the UAE banking sector,” said one source at the meeting. It is expected that local lenders will be given longer to write off the toxic debt they hold in Dubai World.
British banks, including HSBC, Standard Chartered, Lloyds, Barclays and Royal Bank of Scotland, are also at risk. They have a $50 billion exposure to the UAE, according to the Bank for International Settlements, and face hefty writedowns on the value of their loans.
Dubai also faces a storm of protest from its bondholders, many of which are some of the most powerful institutions in America.
The largest creditors to Dubai World, including the British banks, are close to appointing KPMG, the accountant, to represent them.
Dubai is expected to make a statement about its financial position tomorrow, when local markets reopen. They have been closed since Wednesday night for the Eid religious festival. The statement will aim to convince investors that the problems at Dubai World are separate from the country’s sovereign wealth.
Any sign that Abu Dhabi will not stand firm behind Dubai could send world markets into a tailspin once again. The FTSE 100 index fell 3% last Thursday in reaction to the debt crisis but by Friday had stabilised.
“The intervention in Dubai World reflects its specific financial position as a commercial entity,” Dubai’s department of finance said.
“We want to ensure resources are deployed in the full knowledge that they are used to enhance the businesses of Dubai World, build on the restructuring that has already been taking place and ensure long-term commercial success.”
Deloitte, the accountancy firm that has been appointed by Dubai’s department of finance to lead a restructuring, is expected to say it needs until the middle of next week to assess the situation.
Aidan Birkett, the Deloitte partner leading the restructuring, is likely to draw up a list of assets that could be easily sold. Abu Dhabi has bought $15 billion of Dubai’s bonds since February but the official said the emirate would make no further decision on bond investments for the time being. “Until things become clearer, it is very difficult to make any further investment decision on the bonds,” he said.
In the past, Abu Dhabi has demanded control of Emirates, Dubai’s flagship airline, as the price of a cash injection. It is thought to have favoured investing in its neighbour’s strategic assets rather than ploughing cash directly into the state.
Dubai has so far resisted but its position has been severely weakened by the events of the past week. Relinquishing control of its airline would be a big blow because it has come to symbolise the emirate’s rise to international prominence.
As capital of the United Arab Emirates (UAE), Abu Dhabi played host yesterday to a private meeting of Gulf officials to thrash out a response to the crisis. The summit came three days after Dubai stunned the global financial community by admitting that it could not meet its interest repayments.
An Abu Dhabi official said yesterday it would “pick and choose” how to assist its neighbour, a hint that the restructuring of Dubai’s debts may not be straightforward. “We will look at Dubai’s commitments and approach them on a case-by-case basis,” the official said. “It does not mean that Abu Dhabi will underwrite all their debts.”
The offer of help reduces the chances of Dubai being declared bankrupt, a step economists say would threaten the global recovery.
The bankers drafted in this weekend to advise Dubai say they now expect a speedy sale of some of its most high-profile assets, such as the QE2 cruise liner and the Turnberry golf course.
On Wednesday, Dubai asked lenders for a six-month breathing space on loans to Dubai World, the largest government-owned company. It has loans of $59 billion (£36 billion) spread among 90 banks, including a $3.5 billion bond at its property arm, Nakheel, which matures on December 14.
Dubai officials, including Abdulrahman al-Saleh, the director-general of Dubai’s department of finance, attended yesterday’s meeting. It is thought that Sultan bin Nasser al-Suwaidi, governor of the United Arab Emirates Central Bank, was also present. The UAE is keen to prevent a string of defaults at local banks, which have large exposures to Dubai World.
“They are working on measures to limit the systemic risk to the UAE banking sector,” said one source at the meeting. It is expected that local lenders will be given longer to write off the toxic debt they hold in Dubai World.
British banks, including HSBC, Standard Chartered, Lloyds, Barclays and Royal Bank of Scotland, are also at risk. They have a $50 billion exposure to the UAE, according to the Bank for International Settlements, and face hefty writedowns on the value of their loans.
Dubai also faces a storm of protest from its bondholders, many of which are some of the most powerful institutions in America.
The largest creditors to Dubai World, including the British banks, are close to appointing KPMG, the accountant, to represent them.
Dubai is expected to make a statement about its financial position tomorrow, when local markets reopen. They have been closed since Wednesday night for the Eid religious festival. The statement will aim to convince investors that the problems at Dubai World are separate from the country’s sovereign wealth.
Any sign that Abu Dhabi will not stand firm behind Dubai could send world markets into a tailspin once again. The FTSE 100 index fell 3% last Thursday in reaction to the debt crisis but by Friday had stabilised.
“The intervention in Dubai World reflects its specific financial position as a commercial entity,” Dubai’s department of finance said.
“We want to ensure resources are deployed in the full knowledge that they are used to enhance the businesses of Dubai World, build on the restructuring that has already been taking place and ensure long-term commercial success.”
Deloitte, the accountancy firm that has been appointed by Dubai’s department of finance to lead a restructuring, is expected to say it needs until the middle of next week to assess the situation.
Aidan Birkett, the Deloitte partner leading the restructuring, is likely to draw up a list of assets that could be easily sold. Abu Dhabi has bought $15 billion of Dubai’s bonds since February but the official said the emirate would make no further decision on bond investments for the time being. “Until things become clearer, it is very difficult to make any further investment decision on the bonds,” he said.
In the past, Abu Dhabi has demanded control of Emirates, Dubai’s flagship airline, as the price of a cash injection. It is thought to have favoured investing in its neighbour’s strategic assets rather than ploughing cash directly into the state.
Dubai has so far resisted but its position has been severely weakened by the events of the past week. Relinquishing control of its airline would be a big blow because it has come to symbolise the emirate’s rise to international prominence.
Sunday Times
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