UAE Central Bank bails out Dubai
Posted on 23 February 2009 with no comments from readersOrder my book online from this link
Dubai has launched a $20 billion bond programme, and the UAE Central Bank has taken up the first $10 billion tranche paying four per cent over five years.
The new money will more than meet Dubai’s entire loan refinancing requirements in 2009. This bond issue demonstrates federal commitment to support Dubai during the global financial crisis that has strongly impacted on local liquidity since last September.
‘The programme will secure the necessary funding for Dubai to meet its financial obligations and continue its development programme,’ said a statement.
Dubai secure
This bold move answers the questions that have been posed about Dubai’s financial position, and will for the moment dismiss any suggestion of Abu Dhabi swapping Dubai debt for equity stakes.
Dubai has clearly so far avoided diluting its equity holdings and prefers instead to go for a low-cost bond solution to its $80 billion debt. Whether the $20 billion programme is adequate to see the emirate over the entire crisis remains to be seen, as nobody knows its likely length or depth.
However, the government’s business empire is still believed to be cash generative, and the raising of $3.8 billion in ref-financing for the Dubai Borse last week showed that its financial position was not as precarious as some siren voices have suggested.
It could be that the $20 billion bond programme marks something of a turning point in the global financial crisis for Dubai. Stocks are certainly likely to soar today on the back of the first substantial good news in ages.
DFM oversold
For the Dubai Financial Market looks incredibly over-sold at more than 75 per cent down in a year. Dubai is clearly far from bankrupt, and able to secure funding from the central reserves of arguably the richest nation on earth.
That said Dubai still faces many challenges ahead as a global trading hub in the midst of the world’s worst economic conditions in living memory, and the focus of attention will probably now shift to the outlook for private enterprise that is not in receipt of state funds.
The real estate boom that has now gone bust is the most obvious problem looming with banks now seriously worried about the future for developers and contractors.
no Comments posted by readers:
Buying $10 billion in Dubai treasury bonds instead of say US T-bonds also pays the Central Bank a higher rate of interest on its money. Perhaps this is what the Governor meant a few days ago about keeping to local markets in future.
But you could also see this as yet another T-bond buyer cutting back on US debt. Who is going to buy it now to fund the bailout and stimulus plans?
To answer your question, the rest of the world, the countries that wouldn’t lend dubai any money. That’s who.
It seems Mr. Answer doesn’t know the Answer….It is understood that no one will be interested to lend dubai, but to claim that the rest of the world will be lending the US to bailout it ailing economy is nonsense!! Who are these countries china, india, EU, Russia, Saudi? Of course not, they have their own internal problems to deal with and this will keep them busy for a long while…And the US owes them too much already…I guess china has learned the lesson!