Tej Kohli Business Blog

Abu Dhabi gives Dubai $10 billion to meet debts - Tej Kohli

Just in the nick of time, Dubai gets $10 billion bailout from Abu Dhabi to cover its debts.

As Abu Dhabi agreed to bail out its indebted neighbor Dubai with $10 billion dollar in surprise aid, markets across world heaved a sigh of relief. Having seen Dubai’ s bonds and equities falling significantly, Abu Dhabi looks convinced that its wayward fellow has got its lesson. Despite creating a luxurious playground of 5-star hotels and shopping malls, Dubai failed to attract millionaires, celebrities and tourists causing falling real estate costs and decreasing revenues at quasi-government entities like Dubai world.

Tej Kohli says that the benefits to Abu Dhabi are obvious. Dubai shocked investors across the world when it announced on November 25 that it’s asking creditors for more time to repay $26 billion in bonds and debts from Dubai world. As a result investors began dumping shares in Dubai’s biggest companies, and Abu Dhabi felt the jolts too. “While the ADX General Index of Abu Dhabi’s leading shares lost 15% soon after the announcement,  equities in other Middle Eastern countries like Qatar and Bahrain were also affected, Mr. Tej kohli pointed out in his Ozone Real Estate newsletter.

Around 80% of all UAE debts rests with Dubai, while 80% of that with the Dubai World, which is by far the biggest company in Dubai.

Received just in the nick of time, $4.1 billion of the money was allocated to Nakheel, a property developer owned by Dubai world to pay back investors in an Islamic bond maturing that day. The remaining funds will be used to help government-controlled holding company Dubai World, which has asked creditors to agree to restructure $26 billion of its debt, up until the end of April 2010.