Abu Dhabi to the rescue

14 December 2009 By Neil Unmack Follow @unmack1

Abu Dhabi’s $10 bln bailout of Dubai World will boost confidence and please Nakheel bondholders. But there are still questions over the terms of the bailout and the fate of Dubai’s other debt. This volteface doesn’t restore the credibility lost over recent weeks.

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Dubai has received $10 billion from Abu Dhabi to meet a $4.1 billion payment on a bond issued by its property developer Nakheel.

The government said that the remaining funds would provide for interest payments and working capital at Dubai World, Nakheel's parent, until the end of April 2010 subject to the company successfully negotiating a standstill on its remaining debt.

The emirate's government also unveiled a new tribunal which would be used to supervise a financial reorganization of Dubai World if it was unable to achieve an "acceptable restructuring" of its obligations. It said the legal framework for the tribunal was "consistent with international standards of transparency and creditor protection".

Dubai stocks gained on the news, coming close to or reaching limitup levels that cap daily price movements.

In late November Dubai asked creditors of Nakheel and Dubai World for a standstill, affecting $26 billion of debt.

Dubai's sovereign credit default swaps narrowed by about 100 basis points to 410/450, according to analysts. They were trading at about 315/330 before Dubai World announced plans to restructure the debt on Nov. 25.

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