Stock markets in Europe, Asia and the United States rose on the announcement that Abu Dhabi will give neighboring emirate Dubai an influx of $10 billion to help settle its debts. Dubai said in late November that it would ask Dubai World’s creditors for a six-month delay on some of its debt payments, which caused fears of a possible total default to run throughout the global economy. So why is Abu Dhabi Bailing out out Dubai considering tensions and rivalry between the two?
The rescue is a definite surprise, but markets around the world reveled in it. The cash should enable Dubai World to repay a $4.1 billion Islamic bond its property developer unit Nakheel was due to pay on Monday, Dec. 14th. There was an associated grace period of 14-days for payment. A Dubai government statement said the remaining amount would bolster Dubai World until the end of April, 2010.
Dubai itself last month said it would not take responsibility for Dubai World's debts. At the same time, there was no hint that the more conservative Abu Dhabi would provide any funds for rescue.
The question thus arises: why would Abu Dhabi provide a rescue? Abu Dhabi is conservative, and one need only look at the holdings and construction of Dubai to see it most certainly is not. Rather, it tends toward profligacy. However, if Dubai World or other units were to fail, this could mean some of the United Arab Emirates' most valuable properties would end up in foreign hands.
However, there is no question there will be strings attached. An example would be reining in the "free spirit" exhibited by Dubai, which operated pretty much sans oversight by the rest of the UAE, and its freewheeling nightlife in a conservative Muslim region is certain to meet with changes. Abu Dhabi has the most oil resources in the region, and thus was the only UAE member with the ability to handle the debt.
The United Arab Emirates or UAE consists of seven states, called emirates. They include Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Quwain, Ras al-Khaimah and Fujairah.
Dubai’s ruler is Sheikh Mohammed bin Rashid Al Maktoum. His cousin, Sheikh Khalifa bin Zayed, is the president of the United Arab Emirates, and ruler of Abu Dhabi.
In little more than a decade, Dubai amassed more than $100 billion in debt in order to finance a huge construction boom. It also worked to become a regional financial hub. As such, a default would have ended that sort of aspiration, though any ideas of becoming a hub are already damaged by the recent events.
While this influx of cash certainly helps, there is still substantial debt to be considered. Toward that end, Dubai announced a new bankruptcy law today, based on international standards, which would help Dubai World complete a business reorganization should it need to. The government stated this was necessary because Dubai World's existing structure did not allow it to seek protection from creditors.
Written by Michael Santo
HULIQ.com
Comment and add to the story without registration, but keep the comments meaningful please. Links are not accepted.
