Dubai’s government said today it had received £6bn (€6.63bn) in emergency funds from oil-rich neighbour Abu Dhabi to pay debts owed by its struggling conglomerate.
Some £2.5bn (€2.75bn) of the money will be used to pay off a pile of debt from Dubai World’s Nakheel property division that is due today.
Dubai’s ability to repay those funds had been seen as a key test of the debt-laden emirate’s creditworthiness.
The UAE central bank, based in the federation’s capital Abu Dhabi, also says it is prepared to provide support to local banks.
The emirate said the rest of the funds provided by Abu Dhabi would be used to cover Dubai World's interest expenses and general business needs through the end of April, and paying bills owed to ``existing trade creditors and contractors''.
“The government of Dubai is particularly focused on addressing the concerns of Dubai World trade creditors within the emirate of Dubai,” Sheikh Ahmed bin Saeed Al Maktoum, chairman of the Dubai supreme fiscal committee, said.
No details of the UAE bank support were provided, but a person close to the Dubai government said the central bank would inject liquidity into local banks in relation to their possible losses from Dubai World.
“The goal here is to provide a stable framework so we can provide a restructuring,” the person said.
Dubai also said it planned to announce a reorganisation law later today that could be used in case Dubai World was “unable to achieve an acceptable restructuring of its remaining obligations”.
Dubai created Dubai World – whose sprawling holdings range from ports to property and luxury retail – to diversify the small sheikhdom’s economy and boost its international clout.
Dubai is one of seven semiautonomous sheikhdoms that make up the United Arab Emirates, but unlike Abu Dhabi it has little oil of its own.
The conglomerate and the emirate had relied on cheap cash as they rapidly expanded earlier in the decade. But the bills are coming due and the money is not there.
That crunch prompted Dubai’s government, on the eve of the US Thanksgiving holiday, to announce that Dubai World would seek a six-month “standstill”, effectively a delay, on repaying some of its £37bn (€40bn) in debts.
The company later said the restructuring would involve about £16bn (€17.7bn) in debts and indicated it may sell some assets to raise the cash.