The Dubai government to the rescue
Dubai market shares rose on Monday after the Dubai government launched a $20 billion program to bailout the emirate.
February 23, 2009 11:26 by Dana El Baltaji
Dubai’s shares rose on Monday as UAE Central Bank bought $10 billion worth of bonds issued by the emirate, half of an unsecured, $20 billion, 5-year notes issue at an annual interest rate of 4 percent.
The bailout is part of a $20 billion plan the Dubai government has created in order to help the emirate cope with the financial losses incurred during the financial crisis, and to help Dubai raise funds for the $13.2 billion loan payments due in 2009.
The Dubai government has approximately $80 billion in loans and combined bonds, which the emirate used to finance its property and commercial boom.
Emaar Properties shares rose by 12 percent, its highest jump since January 5, 2009. The developer has insisted the financial troubles of its U.S. arm, John Laing Homes, which recently filed for bankruptcy, will not have a major impact on its quarterly earnings, reports Bloomberg.
Similarly, Dubai Islamic Bank shares rose by 8.6 percent, while the Dubai Financial Market stocks jumped by 13 percent.
“[The bailout] is the most important piece of news to come out for the Dubai market since the financial crisis,” said Ali Khan, director of Arqaam Capital in Dubai. “This shows that there is a federal will to respond to the current challenges at the state level and at the federal level.”
The Finance Department plans to issue five-year bonds paying 4 percent interest per year, reports The National.
“This issuance will provide Dubai Government with the necessary liquidity to substitute the liquidity that has dried up globally in the last 12 months and accordingly meet all upcoming financial obligations,” the department said in a statement. “This programme will secure the necessary funding for Dubai to meet its financial obligations and continue its development programme.”
The news comes a week after Bourse Dubai raised $2.5 billion from bankers both in the UAE and abroad, and asked for $900 million from the local government to help pay its $3.4 billion loan repayments.