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UAE push to head off debts damage
30 November 2009 04:55 am
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The United Arab Emirates on Sunday stepped in to shore up its banks and head off any potential capital flight as the nation's federal authorities attempted to counter concerns over Dubai's debt problems.

The UAE central bank set up an emergency liquidity facility to ease fears about its banking system, but investors remained nervous about the short-term impact on local markets as regional traders digested the global sell-off caused by the announcement that one of Dubai's flagship entities Dubai World was seeking a standstill deal with creditors until May.

Because of an Islamic holiday, stock markets in Dubai and Abu Dhabi open on Monday for the first time since Dubai World's shock statement on Wednesday. Some brokers predict that stocks in Dubai and Abu Dhabi will drop to their limits, with banks likely to be particularly hard hit.

The UAE central bank said it would provide lenders with access to fresh liquidity and pledged to stand behind UAE banks and branches of foreign groups. "The central bank stated that the UAE banking system is more sound and liquid than a year ago," a statement said in the first federal response.

Meanwhile, Dubai World is preparing to persuade bondholders of Nakheel, its real estate unit, to roll over that maturity while the government is planning a charm offensive to repair damage caused by a standstill call that followed months of officials downplaying concerns over Dubai's ability to meet obligations on its $80bn (£48bn) debt pile.

UAE authorities were in talks with Dubai officials over the weekend to formulate a response to investor fears and limit damage to the UAE economy.

Nakheel is due to pay $4bn on its Islamic bond next month, while the parent company has total liabilities of $59bn.

Bankers have been waiting to see if Abu Dhabi, the wealthy capital that bankrolls the central bank and is key to Dubai's financial well-being, will intervene. But Abu Dhabi has always insisted that such issues have to be dealt with at a federal level.

Abu Dhabi officials have also said that while they would support all members of the seven-emirate federation, Abu Dhabi would not simply write Dubai a blank cheque.

Reaction to the central bank's statement was mixed.

Marios Maratheftis, Gulf economist at Standard Chartered, said the move was positive, with the central bank acting proactively to send "a signal to banks and the world that they are behind the banks".

Raj Madha, banking analyst at EFG-Hermes, welcomed it as a first step, but said the central bank might have to do more.

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