Nakheel Repayment Has No Immediate Impact On Dubai-Based Government-Related Entity Ratings
The Government of Dubai today announced that, with the backing of the Emirate of Abu Dhabi (AA/Stable/A-1+), it would be providing $10 billion in financing to Dubai World and its subsidiaries, through its financial support fund. $4.1 billion will be used to repay a Nakheel sukuk due today, and the remainder will be used to address contractual arrears that the company has accrued. It also announced that the standstill requested on Nov. 25, 2009, remains in place with respect to all other obligations, and that restructuring negotiations continue.
Finally, the government announced that a "reorganization law" is being put in place to deal with all of the restructuring process for Dubai World and its entities. At the same time, the UAE central bank issued a statement affirming its support of the UAE banking system.
Standard & Poor's Ratings Services considers this announcement as a step towards rebuilding confidence in Dubai's policy-making environment. In particular, we believe the intention to strengthen the laws governing the Dubai World restructuring is an opportunity for the Dubai government to demonstrate the workings of its legal system in dealing with such events. Moreover, we view the intervention of Abu Dhabi as an indication that it stands ready to safeguard the stability of the UAE economy and financial system.
However, we believe uncertainty remains as to the Dubai government's general ability and willingness to provide timely extraordinary support to its government-related entities (GREs), as well as the transparency and predictability of such support. The remaining financial obligations of Dubai World and Nakheel, amounting to around $22 billion, remain the subject of a restructuring. Therefore, we will continue to monitor the situation closely, and any ratings action we take on Dubai-based GREs based on the question of potential government support will be grounded in clear and publicly stated policy that is supported by appropriate laws and/or instruments.
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