Abu Dhabi stepped in to help fellow United Arab Emirates member Dubai with a $10 billion injection, of which $4.1 billion was allocated to troubled state-owned conglomerate Dubai World to pay immediate obligations, Dubai said today.
The move was the least expected of all options Dubai had on the table after requesting a standstill on $26 billion in Dubai World debt on November 25th, alarming markets and shaking the image of the emirate as a regional business hub.
"The government of Abu Dhabi has agreed to fund $10 billion to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World," the chairman of the Dubai Supreme Fiscal Committee said in a statement.
"As a first action for the new fund, the government of Dubai has authorised $4.1 billion to be used to pay the sukuk obligations that are due today."
Meanwhile, a source close to the government said Dubai will create a new bankruptcy framework, modelled in part on US and British practices, in the event that troubled conglomerate Dubai World may need to seek protection from creditors.
"If it can't reach restructuring with its lenders...we wanted to make sure that there was a fair and equitable framework," the source said on a conference call with journalists.
"The bankruptcy law takes the form as a (Dubai) decree and takes from US and UK common law."
The yen fell sharply against other currencies on the news of Abu Dhabi's aid, while the dollar rose to 88.90 yen and the euro also jumped to 130.43 yen.
S&P futures jumped to be up 0.7 per cent, reversing early losses and pushing Treasury futures to session lows. Hong Kong's Hang Seng index shot up 300 points in the last minutes of morning trade to finish in positive territory, while other markets across Asia also pushed higher.
Abu Dhabi is the largest member of the United Arab Emirates federation and a big oil exporter.
"We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices," Sheikh Ahmed bin Saaed al-Maktoum said in the statement.
"Dubai is, and will continue to be, a strong and vibrant global financial centre. Our best days are yet to come."
Reuters