Abu Dhabi threw its flashy but debt-laden neighbour Dubai a $10 billion lifeline to head off a bond default, cheering Gulf and global markets but raising questions about the undisclosed terms.
The surprise rescue should enable Dubai World to repay a $4.1 billion Islamic bond its property developer unit Nakheel was due to honour on Monday, but which has a 14-day grace period for payment.
The cost of insuring Dubai’s debt against default fell sharply on the news and the stock market in the glitzy emirate rose 10.4 per cent, its biggest one-day gain in 14 months. Shares in Abu Dhabi and Qatar also recovered on relief that an immediate crisis had been averted.
The bailout marked a spectacular double policy shift. Dubai last month declined to take responsibility for Dubai World’s debts, and conservative Abu Dhabi had given no hint that it would ride to the flamboyant fellow emirate’s rescue.
A Dubai government statement said the remaining funds would support Dubai World until the end of April next year.
But the conglomerate at the centre of a $26 billion debt storm still needs creditors to agree a standstill on a massive restructuring in order to get financial support to cover working capital and interest expenses.
Analysts said the emirate’s troubles were far from over, and they questioned a statement by a Dubai government source that there were no conditions on the loan beyond the debt standstill.
Neither emirate made clear whether the bail-out was a loan or a grant. A Dubai government source said that there was “no conditionality”, although he also said the terms were “internal” to the governments involved.
Among issues on which Abu Dhabi may seek concessions are Dubai's trade with Iran, the future of its Emirates airline, and its freewheeling nightlife in a conservative Muslim region.