Dubai bailed out by Abu Dhabi after property bust

As a result of falling oil prices and the global financial crisis a considerable fear has developed that Dubai, which has led a very expansive building policy in recent years, would have problems servicing its debt.

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This is a translation of an article at E24, a respected Norwegian finance site:

The government in Dubai said Sunday that it had issued a $ 20 billion (almost 140 billion Norwegian kroner) bond.

The central bank in the United Arab Emirates has said that it is going to sign up for $10 billion of the loan, according to Reuters news agency.

Fear in the market

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As a result of falling oil prices and the global financial crisis a considerable fear has developed that Dubai, which has led a very expansive building policy in recent years, would have problems servicing its debt.

The bond “will ensure adequate funding so that Dubai will be able to meet its financial obligations and continue its development program,” according to a message from the authorities in Dubai.

They say also that the loan will help to solve the liquidity problems the authorities in Dubai have.

The loan will have terms of five years and has an interest rate of four percent.

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Priced like Iceland

The fear that Dubai would breach its debt obligations has been so profound that the cost to insure themselves against default has been at the same level as what it costs to insure against Iceland in default of loans.

The authorities in Dubai have previously stated that they have $80 billion in debt, or nearly 560 billion Norwegian kroner.

Building activity in Dubai has been extremely high in recent years. Emirates built luxury homes and shopping centers on a large scale, and for a time, it was estimated that 25 percent of the world’s cranes were in Dubai.

Extreme luxury

Several of the world’s most luxurious hotels are situated in Dubai, with one of the two 7-star hotel – Buj al Arab – as the great lighthouse.

Among the other attractions in operation or under construction, we find the world’s largest artificial slalom ski slope, the world’s largest collection of artificial islands, the world’s largest amusement park and the world’s tallest skyscraper.

Abu Dhabi is the capital of United Arab Emirates, while Dubai is one of the other Emirates, and investors had expected Abu Dhabi to issue an implicit guarantee that Dubai will not breach its debt.

Earlier this month the government  in the emirate Abu Dhabi decided to put capital into its own banks, but it did not reassure the market since similar capital injections were not made in Dubai’s banks.

Source
Dubai får krisehjelp – E24.com

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