The Dubai government said it will pay 4.1 billion dollars to cover Islamic bonds issued by its Nakheel property developer which mature Monday after receiving 10 billion dollars from oil-rich Abu Dhabi. The Dubai stock market surged over 10 percent as it awoke to Dubai's fresh announcement, while the market in neighbouring Abu Dhabi opened up 7.07 percent.
The announcement comes on the day Nakheel was supposed to repay sukuks worth 3.5 billion dollars and the return on them amid speculations that the troubled developer would not be bailed out. The news saw the Dubai Financial Market index gaining 171 points at opening to 1,866.80, with all sectors in the green and property giant Emaar surging by a full 15 percent, the maximum allowed in a session.
Dubai has worked closely with the central bank of the United Arab Emirates (UAE) and the government of Abu Dhabi to find a solution to the debt problems. This included "addressing and assessing the impact of Dubai World on the UAE economy, banking system and investor confidence," it said.
Rating agencies had downgraded several Dubai corporates after Dubai said on November 25 that it wanted to freeze debt repayments by its heavily-indebted Dubai World group - liable for 59 billion dollars - in order to restructure the largest state-run company.
Dubai World had said earlier that not all its subsidiaries would be involved in the restructuring, pointing out that the debt of the concerned units amount to 26 billion dollars. The statement said also that the government will later Monday issue a "comprehensive reorganisation law, a framework that is based upon internationally accepted standards for transparency and creditor protection." This step seems aimed at appeasing creditors who have been scared off by Dubai's earlier announcement that it might not be able to pay Dubai World debt and its insistance that the government would not guarantee state-corporates debt.