Abu Dhabi to aid Dubai on "case by case" basis

Discussion in 'Wall St. News' started by ASusilovic, Nov 28, 2009.

  1. By Stanley Carvalho

    ABU DHABI (Reuters) - Abu Dhabi, wealthy capital of the United Arab Emirates, will "pick and choose" how to assist debt-laden neighbor Dubai, a senior official said on Saturday, after fears of a Dubai default sent global markets reeling.

    "We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts," the official in the government of the emirate of Abu Dhabi told Reuters by phone.

    Dubai's crisis exploded on Wednesday when the emirate, known for flashy lifestyles and the world's tallest building, said it would delay payment on debt issued by one of its flagship firms, angering investors and sending global markets sharply lower.

    Selective assistance for companies in "Dubai Inc.," a network of quasi-sovereign industries, instead of blanket assistance, would serve a rude awakening to investors who for years assumed that the conservative Abu Dhabi provided a safety net for its racier neighbor.

    "Some of Dubai's entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist," said the official, who declined to be identified because he is not authorized to speak to the media.

    At stake is the $59 billion in debt held by government controlled holding company Dubai World and its property arm Nakheel, builder of palm-shaped islands for wealthy celebrities.

    Dubai delayed payment on Nakheel debt by six months in a shock announcement, which came on the eve of a long holiday.

    World leaders including Britain's Gordon Brown and French premier Francois Fillon said the global economy -- recovering from two years of financial crisis -- was now strong enough to deal with a shock of this magnitude.

    And markets began to recover on Friday after banks outside the Gulf said they were not heavily exposed to Dubai debts.

    India, which receives 10-12 percent of its worker remittances from the UAE, said on Saturday it would keep a close watch on the situation in Dubai but did not expect much impact on it.

    In the Gulf itself, details of local banks' exposure to Dubai have begun to emerge.

    Years of chasing business in Dubai's property boom means Abu Dhabi banks have built up an exposure to Dubai-based companies worth at least 30 percent of their loan books, senior bankers in Abu Dhabi said on Friday.

    In most investors' minds, the question is not whether Abu Dhabi will support Dubai but when and how.

    Abu Dhabi, which pumps 90 percent of the oil that make the United Arab Emirates the world's third-largest oil exporter, has already provided $15 billion in indirect support for Dubai through the UAE central bank and two private Abu Dhabi banks.

    How much more support the emirate provides for its cash-strapped neighbor, however, will depend on how Dubai clarifies its stand on unresolved issues.


  2. "Pick and choose"---does it means that Dubai World will not be able to repay the full value of the loan?

    How are they going to "pick and choose"? Are they gonna choose the potentially profitable entities? How profitable will Dubai be when their reputation of being a rich place tarnished? Will they still be able to attract vacationers to go ski in their indoor ski resorts? How competitive are they as a vacation spot? I have a lot of questions and I am quite confused right now.

    Anyway, I hope the European banks have insurance for this, which I think is a necessity when loaning out in billions of dollars.

  3. Well, at least they have announced the appointment of a Chief Restructuring Officer :

    …But as the dust settles, the realisation will sink in that this surprising announcement is in fact a move in the right direction. The first step in solving a problem is acknowledging there is one. Dubai World, a conglomerate whose proud motto is that the “sun never sets on Dubai World”, expanded in many areas and came to represent many ambitions. And like everyone from Florida to Iceland, it was buoyed by borrowing. The appointment of Aidan Birkett, an experienced chief restructuring officer, will help. He has assisted companies as diverse as Eurotunnel, Cable & Wireless and even the labyrinthine empire of Robert Maxwell, the Czech-born British publishing tycoon.


    Or waht about some oil and gas collateral ?


    Dubai’s oil reserves have reduced over the past decade and are now expected to be exhausted within 20 years. The main fields are offshore: Fateh, Southwest Fateh and two smaller fields, Falah and Rashid. The only onshore deposit is the Margham field. Dubai Petroleum Company (DPC) is the main operator. Dubai has a 2 per cent share of the UAE's gas reserves. Dubai’s Margham gas/condensate field can deliver up to 140 mn cfd for domestic use and offshore fields can provide another 100 mn cfd. Sharjah also supplies Dubai with 430 mn cfd through a pipeline installed in 1992. The state-owned Dubai Natural Gas Company (DUGAS) is responsible for processing natural gas produced in Dubai’s offshore oil fields as well as the gas piped from Sharjah.

  4. Well, it's good to know they are serious about the loan repayment, but I think it will be very difficult for Dubai to get a serious return on their real estate investments, which I think would affect Abu Dhabi's decision.
  5. 1) Will GS "advise" Abu Dhabi in the matter?
    2) Are you thinking of buying a vacation property in the area with some of your 2009 bonus? :cool: