Dubai's £6bn Abu Dhabi lifeline welcomed

Dec 15 2009 by Iain Laing, The Journal

DUBAI'S £6bn handout from oil-rich neighbour Abu Dhabi has been welcomed by London investors as financial stocks and blue-chip banks moved higher.

Barclays, HSBC and part-nationalised counterpart Royal Bank of Scotland posted gains after the emergency funding move to bail out Dubai.

Around £2.5bn of the rescue cash will be used to pay off debts owed by Dubai World’s Nakheel property division. There was relief that United Arab Emirate’s central bank, in Abu Dhabi, said it was prepared to support local banks.

In London, banks were among financial stocks rallying higher, with the wider FTSE 100 Index pushing through the 5300 barrier as it lifted nearly 1%.

The London Stock Exchange, which is nearly 21% owed by Dubai State-owned company Borse Dubai, was the biggest riser, ahead 7%, after being hit recently amid fears over the emirate.

It was followed by Asian-facing bank Standard Chartered with a 4% gain while HSBC and Barclays were not far behind with increases of up to 2%.

Lloyds Banking Group, 43% owned by the Government, was also in the spotlight as results of its £13.5bn cash-call revealed investors took up more than 95% of shares on offer. The sector has suffered after news that Dubai World – a major, government-owned investment company – had asked for a six-month delay on repaying its debts.

European banks are said to be exposed to about half of Dubai World’s debts and concerns have mounted that a default would spark another crisis in the banking industry.

The Abu Dhabi rescue will see the immediate due debts covered, while the rest of the funds provided will cover Dubai World’s interest expenses and business needs to the end of April. Bills owed to existing trade creditors and contractors will also be paid.

There have not been further details of the UAE bank support, although it is thought liquidity will be pumped into local banks in relation to their possible losses from Dubai World.

Dubai also plans a reorganisation law that could be used in case Dubai World was “unable to achieve an acceptable restructuring of its remaining obligations“.

Dubai created Dubai World, whose sprawling holdings range from ports to property and luxury retail, to diversify its economy and boost its international standing.