Abu Dhabi’s Dubai aid shrinks to $5 bln

January 21, 2010 by · 1 Comment 

By Amran Abocar and Nicolas Parasie

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Expert sky diver and BASE jump enthusiast Omar Al Hegelan (C) descends on to Burj Park Island after free falling from Burj Khalifa in Dubai, January 5, 2010. Al Hegelan and Nasser Al Neyadi both expert divers, have broken the record for the world’s highest BASE jump after free falling from the tallest building in the world, and made their landing on Burj Park Island after covering a vertical descent of 672 metres (2,205 ft). Picture taken January 5.

REUTERS/Stringer

DUBAI, Jan 18 (Reuters) – Dubai said on Monday that half of a $10 billion bailout from Abu Dhabi last December came from an older debt deal, highlighting what analysts said was the emirate’s poor market communications and lack of transparency.

Investors said news that Abu Dhabi directly lent less new money than previously thought also indicated the wealthy emirate wanted more evidence of Dubai’s fiscal probity, after helping it avert an embarrassing default on a state-linked bond.

“The government works behind a high degree of opacity and I think market players have factored that in,” said Khuram Maqsood, managing director of Emirates Capital.

The UAE is not known for exercising best practice transparency but that doesn’t mean they’re not trying. But I don’t think they’re there yet and I think people recognise that.”

A Dubai government spokeswoman said the last minute lifeline last Dec. 14 included $5 billion raised from Al Hilal Bank and National Bank of Abu Dhabi which was announced on Nov. 25.

“Obviously it’s a lot less cash than we had assumed,” said Raj Madha, an independent analyst based in Dubai.

“The interesting thing is what it says about the behaviour of Abu Dhabi: whether they are just rushing through a large amount of money or whether they are providing funding where required.”

Five-year credit default swaps for Dubai stood at 426 basis points, up from 423 basis points on Friday.

Dubai rocked global markets last Nov. 25 when it requested a standstill on $26 billion in debt linked to its flagship conglomerate Dubai World and its two main property developers, Nakheel and Limitless World.

The $5 billion raised from the two Abu Dhabi banks was part of a $20 billion bond programme announced early last year. The UAE central bank signed up for $10 billion of that in February.

But it was unclear whether Abu Dhabi’s $10 billion bailout on Dec. 14 — which enabled Dubai World to repay a $4.1 billion Islamic bond, or sukuk by developer Nakheel — was entirely new money or included the bond to the Abu Dhabi banks.

The government spokeswoman, who spoke on condition of anonymity, said the Gulf Arab emirate had already drawn down $1 billion of the $5 billion from the banks, provided under a five-year bond priced at 4 percent, with the rest yet to be used.

The remainder of the funds, some $4.9 billion, may come from the banks’ or the Abu Dhabi government directly, the spokeswoman said, through another of its investment vehicles.

“The question is whether there will be more funds coming in; because as things stand today, Dubai without further support will find it very difficult to drive a favourable bargain with its creditors,” said a Gulf-based banker.

Asked whether Dubai would seek more funds, the spokeswoman declined to comment.

Abu Dhabi’s support in December came nearly three weeks after the standstill news and amid a lack of communication by Dubai which shook global markets and may have caused lasting damage to the reputation of the Gulf business hub.

CREDITOR TALKS

Dubai World is in the midst of talks with its creditors to finalise a formal standstill agreement that would last for six months, during which the conglomerate will restructure its remaining debt burden, estimated at some $22 billion.

The conglomerate has insisted the restructuring is limited only to certain units and has ringfenced its jewels such as ports operator DP World.

In a research note on Monday, UBS said there was a high probability Dubai World would have to offer “sweeteners” to creditors to bring them onside in the debt talks.

That could include higher interest rates or equity swap options to persuade creditors to give up claims to key assets, like the profitable port operator.

“It is unlikely that Abu Dhabi’s support has peaked just yet and the probability of further balance sheet assistance is high,” UBS economist Reinhard Cluse said.

But he said Abu Dhabi, the biggest and wealthiest of the seven member United Arab Emirates federation, would not want to act solely “as a channel for cash” and would demand systemic changes.

Dubai has said the Abu Dhabi lifeline is contingent on Dubai World reaching an acceptable standstill with creditors.

Uncertainty over the restructuring has weighed on UAE markets as investors fret about the outcome amid a dearth of information.

The conglomerate said this month it is “some time away” from presenting its formal plan to creditors, though it is expected in coming weeks.

“Clearly there were critical time deadlines last year that required extraordinary measures,” said Mashreq Capital Chief Executive Abdul Kadir Hussain, of Abu Dhabi’s bailout.

“But whatever form is required, whether it’s the federation or Abu Dhabi, what is critical now is a well-documented plan for repayment and … a strategy that will show how all of this will be taken care of.” On Monday, the Financial Times said some creditors to the conglomerate are seeking to offload loans to reduce their exposure to the conglomerate.

(Additional reporting by Chris Mangham and Dinesh Nair; Editing by John Irish and David Cowell)

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Dubai Officials’ Confidence-Building Britain, US Trip

December 17, 2009 by · Leave a Comment 

By Amran Abocar and Steve Slater

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An investor looks at stock information at the Dubai Financial Market December 16, 2009.   REUTERS/Mosab Omar

DUBAI/LONDON (Reuters) – Two top Dubai officials are visiting Britain and the United States over the coming days to rebuild investor confidence after neighboring Abu Dhabi helped bail out the emirate’s flagship company.

A source close to the government said the officials were already in London and would be in New York on Thursday and Washington on Friday to meet financial and political leaders.

“This is the next step in Dubai’s commitment to greater transparency,” said the source.

“They will spend the next few days meeting financial, economic and political leaders in London, New York and Washington, D.C. to discuss the actions taken this week to stabilize global markets.”

The emirate, famous for its man-made islands in the shape of palms and for other infrastructure projects, rocked global markets on November 25 with a request for a standstill agreement on $26 billion of debt linked to Dubai World and its two main property units, Nakheel and Limitless World.

The roadshow is being led by Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai’s Supreme Fiscal Committee and the uncle of Dubai’s ruler, Sheikh Mohammed bin Rashid al-Maktoum. Until recently he was best known as leader of the Emirates airline, but his public profile has risen since the debt crisis erupted.

Also on the trip is Mohammed al-Shaibani, deputy chairman of the same committee. He heads Sheikh Mohammed’s court and is chief executive of the Investment Corporation Dubai, which oversees the government’s investment portfolio.

‘Comprehensive Solution’

Earlier this week, Abu Dhabi, which produces 90 percent of the United Arab Emirates’ oil exports, provided $10 billion of financial aid to its fellow UAE member to meet the debt obligations of Dubai World until the end of April and to stave off a bond default by Nakheel.

Some $4.1 billion of the rescue funding helped Nakheel repay an Islamic bond, or sukuk, on Tuesday, a day after its due date.

The Abu Dhabi lifeline came in the form of bonds, at similar terms to a $10 billion bond issue to the UAE central bank in February, which carried a coupon of 4 percent per annum for the five-year, fixed-term issue.

Dubai also announced this week it would implement immediately an insolvency law modeled on U.S. and British practices in the event Dubai World needs to seek protection from its creditors. Meanwhile, Dubai’s ruler ordered the creation of a tribunal, headed by three international judges, to oversee any disputes between Dubai World and its creditors.

“They want to explain what happened this week,” said another source close to the government. “It’s very much the transparency message and to discuss the fact they presented a comprehensive solution.”

With the bond repayment out of the way, Dubai World must now agree a standstill with creditors, allowing it time to undergo a massive restructuring. It is slated to meet representatives from some 90 banks in Dubai on Monday.

(Editing by Andrew Callus and Kenneth Barry)

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