ABU DHABI TO BAIL OUT DUBAI
Abu Dhabi will partially bail out its neighbour Dubai
By Tracey Boles and Geoff Ho
ABU Dhabi, the oil-rich capital of the United Arab Emirates, is preparing a partial bailout of its crisis-hit neighbour Dubai, rather than providing blanket assistance.
A senior Abu Dhabi official said that his emirate would “pick and choose” how to assist Dubai which caused chaos on the world markets with the shock announcement that it would delay payment on debt issued by one of its flagship f rms.
The official said: “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.
“Some of Dubai’s entities are commercial semi-government ones. Abu Dhabi will pick and choose when and where to assist.”
Selectively helping cash-strapped companies affiliated with Dubai challenges investor assumptions that wealthy Abu Dhabi provided a complete safety net for its neighbour, known for its fl ashy ex-pat lifestyles.
Abu Dhabi has already provided $15 billion (£9 billion) in support for Dubai through the UAE central bank and two private Abu Dhabi banks.
How much more support the Emirate gives will depend on Dubai clarifying its position. A statement from the Dubai government is expected tomorrow, when the markets reopen after the break for Eid, a religious holiday.
Abu Dhabi may demand stakes in prize firms in return. International markets were rocked when Dubai said on Wednesday it was instigating a major restructuring at Dubai World, which had $59 billion (£36 billion) of liabilities in August.
As part of the restructuring programme, investors have been advised of a “standstill” in repayment of a $3.5 billion (£2.1 billion) Islamic bond due for maturity on December 14.
The Financial Services Authority (FSA) believes that UK banks should be able to withstand the fallout from Dubai, despite the fact that HSBC, Barclays, Royal Bank of Scotland, Standard Chartered and Lloyds Banking Group have between them lent £20 billion to the city state and its neighbours.
The FSA, Treasury and the Bank of England have been in constant contact with the banks about their exposures to Dubai since the debt crisis began.
However, the FSA believes that the banks are capable of absorbing any Dubai-inspired losses without difficulty, due to the “rigorous” stress testing it subjected them to earlier this year, as well as the subsequent capital raising exercises the sector went through.
