The sovereign wealth fund of Abu Dhabi cheered markets by extending a $10 billion bailout to Dubai, enabling its fellow emirate to avoid an embarrassing slide into default by troubled state-owned property developer Nakheel. The move by the oil-rich capital of the United Arab Emirates ended three weeks of market turmoil following Dubai’s request to freeze payments on $26 billion in debt held by state-owned conglomerate Dubai World, Nakheel’s parent.
The Dubai government said it would use the funds to settle a $4.1 billion Nakheel sukuk (Islamic bond) due on the 14th and for interest payments and working capital while Dubai World negotiated a debt restructuring.
As I stated in my blog on 29 November, I believe they had no choice but to bailout their fellow emirate if they were to achieve the goals they have. First to remain a player on the world stage, and second to solidify their position atop the internal hierarchy of the UAE.
Clearly they have achieved these goals, but did they get their money's worth? My answer succinctly, is a resounding yes. $10 Billion is a drop in the barrel (pun intended) for them and the world has put a seal of approval on the matter with a recovery of the domestic stock markets as indicated by the Dow Jones Islamic Market Titans 100 regaining about half of what it lost in the days after Dubai’s announcement. More significantly the National Bank Of Abu Dhabi Pjsc, Emaar Properties Pjsc, Al Dar Properties, and Union National Bank Pjsc, all major holdings of the Abu Dhabi sovereign wealth fund have been the best performers in the Middle East Markets since they announced the bailout.
Additionally, instead of seeing headlines blaring impending doom, you see articles in the Wall Street Journal like “Bargain Hunters Take a Look at Dubai”. Also in the WSJ yesterday is the report that Dubai-based luxury-resort operator Jumeirah Group announced in Hong Kong its intention to Dubai-based luxury-resort operator Jumeirah Group said its expansion plans are continuing despite declines in revenue and worries about its home city’s financial condition.
Either of the above makes the investment of $10 Billion a value, but if you add the $3 rise in the price of crude since they announced the bailout, which I believe the bailout contributed to by removing the fear of the global effects of a Dubai default, they have essentially a windfall.
I’ll go on record once more and state that if the situation degrades and Dubai needs more cash to survive, Abu Dhabi will be right there again.