The Dubai government today said that it has received $10 billion in financing from Abu Dhabi to help the state-owned conglomerate Dubai World group repay its $4.1 billion Islamic bonds maturing today.
"We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices," said Sheikh Ahmed bin Saaed al-Maktoum, the chairman of the Dubai Supreme Fiscal Committee in a statement.
Dubai World's property unit Nakheel said it would repay the Islamic bond obligations of $4.1 billion within the next 14 days and added that it will start talks with creditors and contractors soon.
The remainder of the funds will be used to finance Dubai World's needs up until the end of April 2010.
Maktoum said, ''Dubai is, and will continue to be, a strong and vibrant global financial centre. Our best days are yet to come, and Dubai will soon announce a comprehensive reorganization law, based on international standards, for transparency and creditor protection.''
Earlier, an unidentified official of the Abu Dhabi government had told Reuters that it would "pick and choose" how to assist its debt-laden neighbour Dubai, "We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts. (See: Abu Dhabi to be selective in aiding Dubai World)
Today's announcement eased the pressure on the tiny emirate kingdom and ended weeks of speculation about whether the state will be able to meet its financial obligations after years of unrestrictive spending.
The news also had a positive effect on the global financial markets as the Asian bourses rebounded, and the US dollar and the euro rose against the yen.
Dubai, which is a regional hub for finance, investment and tourism thanks to sovereign funds and investment companies like Dubai World, threw global markets into jitters late last month when it asked creditors to restructure almost half its $59 billion debt and wanted a six-month suspension of all debt repayments. (See: Bank stocks tumble as Dubai seeks moratorium on debt)
The crisis sent Asian markets reeling with shares of financial institutions and real estate sector worst affected.