VZCZCXYZ0003
PP RUEHWEB

DE RUEHDE #0533/01 3481102
ZNY CCCCC ZZH
P 141102Z DEC 09
FM AMCONSUL DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 6750
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHDE/AMCONSUL DUBAI 0050

C O N F I D E N T I A L DUBAI 000533 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR NEA/FO; NEA/ARP/BMCGOVERN; TREASURY FOR NATASHA 
ZAMECNIK 
 
E.O. 12958: DECL:  12/14/2019 
TAGS: ETRD KIPR EFIN ECON PREL AE
SUBJECT: DUBAI RECEIVES LIFELINE FROM ABU DHABI GOVERNMENT 
 
REF: A. A) ABU DHABI 1114 
     ¶B. B) DUBAI 530 
 
CLASSIFIED BY: Jennifer Gavito, Deputy Principal Officer. 
REASON: 1.4 (b), (d) 
¶1. (C) SUMMARY:  The Government of Dubai, acting through the 
Supreme Fiscal Committee, announced on December 14 that it had 
received USD 10 billion directly from Abu Dhabi in order to pay 
off Dubai World's real estate developer Nakheel's USD 4.1 
billion sukuk (Islamic bond).  The balance of the USD 10 billion 
will also be used to meet Dubai World's other short-term fiscal 
obligations through April 2010. Sheikh Ahmed bin Saaed 
al-Maktoum, Chairman of the Dubai Supreme Fiscal Committee, 
reassured investors, creditors, and UAE citizens that the 
government of Dubai will "always act in accordance with market 
principles and internationally accepted business practices." 
Additionally, a top Nakheel official explained to Econoff that 
Nakheel was bailed out because it is a strategic asset for Dubai 
and that the developer is confident that the support will 
provide more than enough liquidity to successfully complete its 
ongoing restructuring effort, as well as meet its future 
obligations.  END SUMMARY. 
 
 
 
------------------------------------------- 
 
ABU DHABI BAILS OUT DUBAI WORLD AND NAKHEEL 
------------------------------------------- 
 
 
 
¶2. (C) Sheikh Ahmed bin Saeed al Maktoum released a statement on 
December 14 announcing that the Emirate of Abu Dhabi - and 
notably not the UAE federal government - had provided USD 10 
billion to pay off Dubai World's upcoming debts and, in 
particular, Nakheel's December 14 USD 4.1 billion bond 
obligation.   The markets had initially treated Dubai World's 
November 25 announcement of a six month standstill on part of 
its USD 59 billion debt payments as a potential default (Ref A). 
 However, Dubai and regional markets had begun to recover in 
recent days on speculation of a possible deal.  The Dubai 
government had also begun to publicly distance its books and 
sovereign obligations from that of Dubai World and other 
commercial entities (Ref A).  The statement released by the 
Supreme Fiscal Committee mentioned that the funds from Abu Dhabi 
would only serve as short-term financial support for Dubai World 
until April 2010.  Authorities did not immediately reveal the 
terms of the USD 10 billion cash infusion, fueling additional 
complaints about the lack of transparency in the handling of 
Dubai's finances.  Meanwhile, trading stalled on UAE exchanges 
as most stocks hit their up limits and investors refused to sell. 
 
 
 
------------------------------------- 
 
NAKHEEL SEES CLEAR PATH AFTER PAYMENT 
 
------------------------------------- 
 
 
 
¶3. (C) In a December 14 meeting with Econoff, David Nicholson, 
General Counsel for Nakheel, said that the developer fully 
appreciates the Government of Dubai and Emirate of Abu Dhabi's 
support to enable payment of the 4.1 billion sukuk payment. 
Nicholson said he could now see a clear path for Nakheel to 
successfully complete its ongoing restructuring effort and meet 
its future project development plans.  Nicholson argued that the 
payment was a signal of the government's commitment to Nakheel 
and its strategic value for Dubai and the UAE.  Nicholson 
compared Nakheel's de facto bailout to that of the USG's 
financial support for General Motors and other key U.S. 
commercial entities.  Nicholson said that Nakheel and Dubai 
World was arguably more "strategic" for Dubai than General 
Motors was for the U.S. because Nakheel has been at the center 
of Dubai's plans to create a logistics, trading and tourism hub 
in the broader MENA region in support of the Government of 
Dubai's published 15 year strategic plan. 
 
 
 
--------------------------------------- 
 
RESTRUCTURING CONTINUES DESPITE PAYMENT 
 
--------------------------------------- 
 
 
¶4. (C) Nicholson told Econoff that Dubai World and Nakheel's 
restructuring efforts will continue despite the last minute 
payment of USD 4.1 billion sukuk.  According to Nicholson, the 
restructuring effort and direction for Nakheel is being handled 
primarily at the Dubai World senior management level.  He said 
that Nakheel would continue to face difficult and complicated 
negotiations with investors and contractors as they rationalize 
remaining debts and begin to jump start still outstanding 
project developments.  (Note: According to a recent Barclays 
Report, Nakheel still has some USD 2.2 billion in loans due in 
2009 and about USD 1 billion in bonds maturing by 2011. End 
Note) According to Nicholson, most banks have been helpful with 
respect to allowing Nakheel to reschedule its upcoming 
maturities.  Nicholson explained that the USD 4.1 billion that 
was just paid was the real debt "bottleneck" for Nakheel and 
Dubai World.  More importantly, however, this bailout was 
critical to the Government of Dubai and its perception in 
international financial circles as a credible borrower. 
 
 
 
------- 
 
COMMENT 
 
------- 
 
 
 
¶5. (C) The last minute USD 10 billion cash infusion by the 
Emirate of Abu Dhabi, which was not directed through the UAE 
Central Bank or federal government as in the past, is a lifeline 
for Dubai World and Nakheel.  The bailout investors had been 
anticipating before the November 25 announcement is more about 
saving Dubai than a commitment to saving the ailing Nakheel, 
however.  The payment today may cover Dubai World's most 
immediate debts, but leads to only more questions about what 
will be done with other debts throughout Dubai Inc.  It also 
adds to the uncertainty about the role of Abu Dhabi as a 
guarantor of Dubai's debts and what it means for the future 
relationship between the two Emirates.  While today's news will 
certainly contribute to the changing dynamic between the two, it 
is difficult to draw any easy conclusions.  In any event, 
today's announcement is an important step forward in Dubai's 
restructuring and recovery process.  END COMMENT 
SIBERELL