No blank cheque as Abu Dhabi probes Dubai debt

Nov 30 2009 by Iain Laing, The Journal

OIL-rich Abu Dhabi is putting together a rescue package for its cash-strapped neighbour Dubai but has said it will not underwrite all of the country’s debts.

Abu Dhabi hosted a meeting of senior Gulf officials over plans to tackle the crisis, which erupted after state-backed Dubai World asked to delay payments on its £36.8bn debts.

Dubai’s government is expected to make a statement before the market opens today.

Fears of a default sent shockwaves around global markets – hitting shares in UK banks amid worries over their exposure to the region.

But Abu Dhabi will not be writing a blank cheque for its neighbour. “We will look at Dubai’s commitments and approach them on a case-by-case basis,” an Abu Dhabi government official said. “It does not mean that Abu Dhabi will underwrite all of their debts.”

Dubai World’s own investments range from Scotland’s historic Turnberry golf course to Nakheel, the developer behind Dubai’s luxurious Palm man-made islands. Other assets swept up by Dubai’s network of sovereign wealth and investment firms in the boom years included the QE2, the Emirates airline and the Travelodge chain.

Deloitte have been appointed as an adviser to Dubai World to help it restructure the company’s debts. The firm had a £2.1bn bond payment due next month and wants breathing space for repayments falling due until the end of May.

UK banks are meanwhile said to have to turned to KPMG – unavailable for comment yesterday – to represent their interests in the region. According to the latest figures from the Bank for International Settlements, UK banks had a £30.5bn exposure to the United Arab Emirates at the end of June, although individual figures for Dubai are not available.

London shares tumbled 3% on Thursday, wiping almost £44bn off the FTSE 100 Index in its worst session since March, although shares clawed back some of the losses on Friday.

And the central bank of the United Arab Emirates (UAE) has said it will provide its banks with extra liquidity. The liquidity will be available to all UAE banks as well as foreign banks operating in the Emirates.