United Arab Emirates to Bailout Dubai

Posted Feb 23, 2009 by Bob Ewing
The United Arab Emirates has agreed to spend $10 billion to bail out the once-high flying emirate of Dubai, which has fallen victim to the world-wide downturn.
Construction projects in Dubai.
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The United Arab Emirates is planning to spend $10 billion to bailout the once extremely affluent Dubai. The construction and financial expansion sector plans of the country had been a symbol of the boom times.
The funds, in the form of a bond issuance, will provide Dubai "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 U.A.E. said. The bond will be unsecured, fixed-rate paper, yielding 4% a year, with a five-year maturity.
There are concerns that Dubai may not be to pay back all its loans, especially as the city's once red-hot property market cools.
The UAE plans to inject capital into Emirates Development Bank, a newly created rescue vehicle that is preparing to absorb the merging Islamic lenders Amlak and Tamwee,
"We will see more consolidation, especially with third-party developers, who may be facing some lending difficulties," Mohamed Alabbar, a member of the emirate's ruling council said, in the first official recognition that Dubai would have to pare back its lofty ambitions.
"We are rationalizing our expenditure and consolidating our activities."
It is possible that the money will restore faith in Dubai’s troubled real estate sector. It is reported more than half the developments have been abandoned as financing dries up and demand disappears. In addition, property prices are in freefall, dropping on average a quarter from the third to fourth quarters last year.