Abu Dhabi’s financial lifeline to Dubai is loan

Friday, December 18, 2009
DUBAI: Abu Dhabi’s last-minute lifeline to debt-laden Dubai, which prevented a potential major default, was an interest-bearing commercial loan and not a handout, a government-owned daily said on Thursday.

“It’s in (the form of) bonds,” the Emirates Business newspaper reported, quoting a source close to the Dubai government.

The 10-billion-dollar package announced on Monday allowed Dubai to pay maturing bonds worth 4.1bn dollars owed by its giant property developer Nakheel.

The loan was released “on similar commercial terms (to) the first tranche” of aid received by the Dubai Financial Support Fund from the Abu Dhabi-based central bank of the United Arab Emirates in February.

The DFSF, set up to deal with Dubai state-corporates debt, had in February obtained 10 billion dollars from the central bank, which subscribed to five-year Dubai government bonds carrying an annual interest rate of four per cent. Two Abu Dhabi-controlled banks in November subscribed to a second bond issue of five billion dollars. The paper said that the loan carried the same terms.

The Dubai government did not specify the nature of the financial injection it received from Abu Dhabi, sparking speculation as to whether it was a grant or a loan.