Dubai to pay 4% on $10 bn Abu Dhabi bonds

Dubai borrowed $10 billion from Abu Dhabi this week by selling its neighbor five-year bonds paying an annual interest rate of 4 per cent, said a person close to the government, who is familiar with the transaction.

Those are the same terms Dubai paid for $10 billion from the Abu Dhabi-based central bank in February and another $5 billion from government-controlled National Bank of Abu Dhabi PJSC and Al Hilal Bank in November.

Abu Dhabi’s government provided the funds to Dubai on December 14 to help Dubai World, the state-owned holding company, avoid defaulting on a $4.1 billion Nakheel PJSC bond payment that roiled global financial markets. The rest of the money will cover Dubai World’s interest and operating costs until the company reaches a standstill accord with creditors, Dubai’s government said. Dubai used $4.1 billion from the new bond sale to pay off Nakheel’s bond that matured on Tuesday.

 

“This information should go some way toward mitigating market speculation about potential hidden costs of this funding and whether there are any assets involved in the transaction,” said Chavan Bhogaita, head of credit research at NBAD, the United Arab Emirates’s second-largest lender by assets.

Dubai World said December 1 it’s seeking to restructure $26 billion of debt, less than half the $59 billion of liabilities it had at the end of 2008. Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate’s businesses may need help making payments, Morgan Stanley said in a report.