Dubailout

Whatever you want to call it - the world sees it that Abu Dhabi has saved Dubai. Lex has coined the phrase Dubailout. We predict that there will be more dubailouting happening over the next year or so. The markets think otherwise, with trading up on announcement of the injection/bonds/bailout. But that might just be because there is now an acceptance that Dubai and Abu Dhabi are now bound by more than just being neighbours. As Lex says:

All together now. Dubai’s $10bn cash injection from the United Arab Emirates’ central bank has eased concerns about the struggling emirate’s ability to make good on $13bn in debt payments due by the end of this year. Just as important as the deal’s dollar figure, however, is the political message it sends. After weeks of uncertainty, Abu Dhabi, the Emirates’ oil-rich sugar daddy, has demonstrated its willingness to stand behind its poorer relation.

Strictly speaking, the UAE central bank’s purchase of $10bn of five-year Dubai bonds – part of $20bn in new bonds priced at 4 per cent interest – was agreed at the federal level by all seven emirates. But at its core, the move amounts to a bail-out by proxy of Dubai by its bigger, wealthier neighbour, Abu Dhabi, which is the biggest contributor to the UAE’s federal budget thanks to a quirk of geography that left it holding 8 per cent of the world’s oil reserves.

And Lex finishes with:

But, by making its implicit backing explicit, Abu Dhabi has given its neighbour valuable breathing room.

Breathe in now.....

Dubailout