Dubai to be rescued by Abu Dhabi....

HAMISH_MCTAVISH

Since the economic crisis struck, Abu Dhabi officials have repeatedly talked up the strength of the union and insisted they would not allow another member of the family to fall.

Bankers also say that it would damage Abu Dhabi if Dubai – just a 1½ hour drive from the capital – imploded, particularly given the exposure of Abu Dhabi entities, investors and banks to Dubai. Abu Dhabi officials have previously said support for Dubai would be forthcoming if needed. But it has also been clear that the capital would not simply pour money into Dubai without scrutiny, particularly for developments it considered white elephants.

The question many have raised is what price would Abu Dhabi put on its support?

Would it require equity stakes in the better-run Dubai entities?

Would it use its financial clout to rein in Dubai to ensure the excesses were not repeated?

Would Abu Dhabi’s hawkish leaders seek to persuade Dubai to curb some of its economic ties to Iran?

Dubai also knows there are more straightforward costs – loss of face and a weakening of its independence.

In February, the UAE central bank subscribed to the first $10bn of Dubai’s $20bn bond programme after weeks of speculation. That provided the veneer of federal support, but the central bank is dependent on Abu Dhabi’s riches.

Many assumed that the central bank – backed by Abu Dhabi – would be on hand for the next $10bn tranche.

One UAE-based banker with knowledge of the process said Abu Dhabi entities were evaluating Dubai assets in the summer, with some officials arguing that the support would need to take the form of a mortgage.

Ultimately, though, there is consensus that Abu Dhabi will not see it fail.

http://www.ft.com/cms/s/0/08c567fc-db85-11de-9424-00144feabdc0.html?ftcamp=rss&nclick_check=1

Hmmmm, where have I heard this before????

http://forums.moneysavingexpert.com/showpost.html?p=27259721&postcount=3

Oh yes..... that's where.:rolleyes:

Generali

Whether or not this is a default depends on whether or not the Dubai Government can make payment in full to everyone that demands payment on 14th December. If you ask people not to accept payment it's not a default, if you tell people you're not paying it is.

Degenerate

Generali wrote: »

Whether or not this is a default depends on whether or not the Dubai Government can make payment in full to everyone that demands payment on 14th December. If you ask people not to accept payment it's not a default, if you tell people you're not paying it is.

Indeed. However, if they were capable of making those payments they would be insane to make the announcement in the first place, as it obviously raises alarm and makes it much more difficult to roll over debts in future. If enough bondholders accept new terms voluntarily, it won't technically be a default, but it's obvious Dubai must already be in a position where - barring the charity of others - default is inevitable.

nearlynew

So, Abu Dhabi "rescues" Dubai.
One country rescues another.

Sounds great doesn't it?



But does anyone (particularly you, McTittish) actually know what it means in real terms?

HAMISH_MCTAVISH

nearlynew wrote: »

So, Abu Dhabi "rescues" Dubai.
One country rescues another.

Actually they are both part of the same country. Much like Wales, Scotland and England.

Whilst they do have different Royal families, they are both part of the UAE, share the same currency, and same Federal central bank.

But does anyone (particularly you) actually know what it means in real terms?

Yes, and likely in far more detail than you do.

The reality is that not a lot will happen, over here anyway. UK bank exposure to Dubai is minimal, between 1 and 8 billion for each of the majors, but almost none of it is in the tranche of debt about to come due, it's mostly in long term debt that won't rollover any time soon.

The biggest risk is to, unsurprisingly, Abu Dhabi banks.

Abu Dhabi will use this as an opportunity to regain federal control over many parts of the "upstart state" Dubai's economy. Abu Dhabi is the real economic powerhouse in the UAE, with a sovereign wealth fund valued at almost a Trillion Dollars..... More than enough to bail out Dubai's entire debt obligation of a mere 80 Billion.

Abu Dhabi will see this as a chance to dismantle, or at least weaken, much of Dubai's state run economy by forcing some of the property companies (particularly Nakheel) to restructure. Abu Dhabi is of course building it's own mega property developments, and sees Dubai as a competitor. Emirates airline is another tempting asset for Abu Dhabi to take in return. The quid pro quo will probably not stop at economic restraints however, as Dubai's relatively relaxed "moral" standards (it's the brothel of the middle east) has caused offence to the other Emirates and neighbouring Saudi Arabia. A crackdown on such "tourism" is likely as well.

The danger however, is that Abu Dhabi overplays it's hand, forcing Dubai to liquidate it's significant overseas assets at fire sale prices instead, in which case the contagion could spread.

The likeliest option is that Dubai will give in, and Abu Dhabi will cover the debt obligations. In which case things will be contained and everyone moves on.

Until the next default crisis....

The baltic states are particularly fragile, but thats another story entirely.

Generali

nearlynew wrote: »

So, Abu Dhabi "rescues" Dubai.
One country rescues another.

Sounds great doesn't it?



But does anyone (particularly you, McTittish) actually know what it means in real terms?

What it means is that Abu Dhabi will lend enough money to Dubai that it can make its forthcoming interest and capital payments.

In return they will require certain undertakings from Dubai, probably that they will sell some of their assets to repay the loan and reduce their other outstanding debt.

The papers seem to think that the QE2 and Turnberry golf course are top among the assets to be sold.

Basically Abu Dhabi is buying some time for Dubai to allow them to sell illiquid assets. An analogy would be your rich uncle lending you the money to make your mortgage payment while you try to sell your BTL flat. Once it's sold you can repay your mortgage and your uncle.

michaels

Lots of money could have been made on the market volatility and possibly CDS's from the way this has been handled by Abu Dhabi - interesting?

Generali

HAMISH_MCTAVISH wrote: »

http://www.ft.com/cms/s/0/08c567fc-db85-11de-9424-00144feabdc0.html?ftcamp=rss&nclick_check=1

Hmmmm, where have I heard this before????

http://forums.moneysavingexpert.com/showpost.html?p=27259721&postcount=3

Oh yes..... that's where.:rolleyes:

Oh no they're not!

http://www.ft.com/cms/s/0/b0805f64-dd7a-11de-9f8b-00144feabdc0.html?nclick_check=1

Dubai’s government will not guarantee the debts of Dubai World, the state-owned holding company struggling under the weight of $59bn in liabilities, arguing that lenders were mistaken to think that there was sovereign backing.

Abdulrahman al-Saleh, department of finance chief, said creditors were responsible for their own lending decisions and should differentiate between companies and the state.

“Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct,”

Mr.Brown_4

I wonder who is going to rescue Scotland when the wee bailiff comes knocking? Post your own link, its out there somewhere - mounting problems I read yesterday.

martinbuckley

Mr.Brown wrote: »

I wonder who is going to rescue Scotland when the wee bailiff comes knocking? Post your own link, its out there somewhere - mounting problems I read yesterday.

Hamish of course - he's made so much on property this year, he can bail out the entire nation.:T

doire_2

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