After the revelation that Dubai World, the holding company owned by the Dubai government, was unable to meet the demands of a £3.18bn Islamic bond last month, the government of Abu Dhabi has agreed to fund £6.2bn ($10bn) to the Dubai Financial Support Fund that will be used to meet a series of upcoming obligations on Dubai World’s bonds.
Dubai Supreme Fiscal Committee chairman Sheikh Ahmad Bin Saeed Al Maktoum, the leader of Dubai, says: “Recently, Dubai World announced that it might not be able to commercially support its obligations. Since that time, the government of Dubai has worked closely with the Abu Dhabi government and the UAE Central Bank addressing and assessing the impact of Dubai World on the UAE economy, banking system and investor confidence.”
The first action for the new fund will be to use £2.5bn ($4.1bn) to pay the Islamic bond, or sukuk, obligations that are due today. The remaining funds would also provide for interest expenses and company working capital through to April next year, providing Dubai World is able to successfully restructure its debts.
The remainder of the funds provided by the Abu Dhabi government will be used to meet the debts of existing trade creditors and contractors.
The central bank has also pledged to provide support to local Emirate banks. Also, the government of Dubai will be announcing a “reorganisation law”, a framework for creditor protection should Dubai World be unable to successfully restructure its business and debts.
Sheikh Ahmad Bin Saeed Al Maktoum says: “Dubai is, and will continue to be, a strong and vibrant global financial centre. Our best days are yet to come.”