UAE Central Bank Intervention In Dubai Debt Debacle Imminent
November 29th, 2009Via: Wall Street Journal / Dow Jones:
DUBAI (Zawya Dow Jones)–The Abu Dhabi-based Central Bank of the United Arab Emirates is expected to announce before U.A.E. stock markets open Monday that it will guarantee Dubai World debt to help protect local lenders from potential losses amid rising anxiety among investors, people briefed on the matter said.
The central bank, which has been mute since Dubai World said Wednesday it would restructure and seek a six-months debt standstill, will issue a statement later Sunday or early Monday, when the Dubai government is also slated to make a parallel announcement, the people said.
“You will hear news out of Abu Dhabi today, that’s where the story has shifted to,” a senior Dubai-based official said.
Abu Dhabi-based officials confirmed to Zawya Dow Jones Sunday that a central bank intervention was forthcoming.
The unprecedented measure will allow local U.A.E. banks exposed to Dubai World, which has almost $60 billion of liabilities, to avoid taking provisions, people who had been briefed on the matter, said.
A spokesman for Abu Dhabi government would not comment when called.
Senior Abu Dhabi-based bankers have told Zawya Dow Jones that the central bank would protect local lenders from having to provision for their exposure to Dubai World, after aggressively lending directly to Dubai’s government and to its state-related entities over the past few years.
“When the [Abu Dhabi] government tells two of its banks to subscribe to a Dubai government bond, we can be fairly certain it’s neither going to let its own banks, or Dubai, fail,” one banker said.
Abu Dhabi Wednesday extended a $5 billion lifeline to the Dubai government, hours before Dubai World’s restructuring announcement, by having two banks it majority-owns subscribe to a Dubai government bond. In February, Abu Dhabi indirectly intervened by fully subscribing to the first, $10 billion tranche of a $20 billion Dubai government bond program to prop of the state’s struggling companies.
