Abu Dhabi, Dubai markets surge on bail-out plan (1st Lead)

Dec 15, 2009, 11:57 GMT

Dubai - The government of Dubai said Monday it would use a 10-billion-dollar line of credit made available to it by neighbouring emirate Abu Dhabi to pay immediate financial obligations, including a 4.1-billion-dollar bond that is due Monday.

The announcement sent exchanges in the two Gulf city-states surging upward, with Dubai's DFM index trading up 10.3 per cent at 1,871 points, while, in Abu Dhabi, the general index gained 207.02 points, a gain of 7.92 per cent, to stand at 2,820.90 in the afternoon.

It was the third straight day where trading has followed an upward trend. Dubai had gained nearly 20 per cent in the three most recent sessions, clawing back losses made when Dubai World said in November it would not meet its debt on time.

Other markets in the region worked on the rally, with Kuwait gaining 0.88 per cent and Saudi Arabia's Tadawul up 1.85 in the early afternoon. The Qatar Exchange saw a 2.6 per cent upward move on the day.

'The government of Abu Dhabi has agreed to fund 10 billion dollars to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World,' according to a statement from Shaikh Ahmad Bin Saeed Al Maktoum, chairman of the fund, released prior to markets opening.

'As a first action for the new fund, the government of Dubai has authorized 4.1 billion dollars to be used to pay the sukuk obligations that are due today,' the statement added, referring to the major debt of Nakheel, the development wing of troubled Dubai World holding company, whose Islamic bond came due Monday.

The company said on November 25 that it would not be able to meet debt obligations and would require a freeze on repayment. It has since clarified that it aimed to restructure some 26 billion dollars in liabilities.

The support fund was set up earlier this year to help ailing government-controlled companies affecting by the collapsing housing bubble and the global economic crisis. It was funded by the central bank of the emirates and Abu Dhabi, the oil-rich neighbour of Dubai.

The statement said the United Arab Emirates Central Bank 'is also prepared to provide support to local UAE banks.'

The cost of insuring Dubai's debts was also expected to tumble on the news of the economic rescue package.