Bond payment lifts Dubai morale

The announcement that Dubai will redeem the $3.6-billion Nakheel sukuk in full, using funds drawn from a new $10 billion provided by the Government of Abu Dhabi, has sent a powerful message of confidence and renewed direction to the markets. Fears that Dubai would default have been proved false, and this substantial further support from Abu Dhabi has made very clear that Dubai will now be able to weather the storm.

The $10 billion announced Monday as funding for the Dubai Financial Support Fund is in addition to the $15 billion from Abu Dhabi already committed through Dubai Government bonds. This total of $25 billion is just under a third of the total of around $80 billion of debts of Dubai Government entities and companies, which is a very large proportion of total government debt to refinance. Such a substantial refinance means that Dubai's debts are much more manageable than before, and this will help to calm the wilder fears that have been affecting Dubai and the world's stock markets over the past few weeks.

The April deadline contained in Monday's first announcement, and the government announcement later of the legal framework in which all this will be carried out, means that the restructuring of Dubai World, and its two subsidiaries Nakheel and Limitless, has to move ahead rapidly so that debtors will be able to come to agreement with what is being proposed. Transparency and clarity are vital to bringing calm to the markets, and the officials handling the restructuring should not be afraid of bringing bad news into the public view. It will be the only way for everyone to be able to move on.

What was also very important in yesterday's announcements was a commitment to the creditors of the Dubai World companies. Shaikh Ahmad Bin Saeed Al Maktoum, speaking as the Chairman of the Dubai Supreme Fiscal Committee, spelt out "the particular focus on addressing the concerns of Dubai World trade creditors within the Emirate of Dubai. To help address these concerns, today the Government of Dubai is announcing that the remainder of the funds provided will be used for the satisfaction of obligations to trade creditors and contractors".

This practical angle to the government's plans means that contractors and others who have some very large outstanding bills with Nakheel and Dubai World's other subsidiary Limitless should expect some payment soon. In turn this means that they will be able pay their suppliers, many of whom are struggling badly, in particular the smaller companies who do not have the resources to handle bills not being paid on time. Such a flow of money onto the working economy of Dubai will give a huge upward boost to the Emirate's commercial morale.