Emirates to back banks amid Dubai crisis

A billboard outside the Emirates Twin Towers displayed a picture of Dubai’s ruler, Sheikh Mohammed bin Rashed al-Maktoum (bottom). A billboard outside the Emirates Twin Towers displayed a picture of Dubai’s ruler, Sheikh Mohammed bin Rashed al-Maktoum (bottom). (Karim Sahib/ AFP/ Getty Images)
Associated Press / November 30, 2009

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DUBAI, United Arab Emirates - The United Arab Emirates’s central bank said yesterday that it would offer additional liquidity to banks, signaling a push by the federal government to reassure investors worried about the country’s banking sector and its exposure to Dubai’s crushing debt.

Global equity markets were set to reopen today and investors are worried about a routing similar to that seen last week after Dubai’s chief engine for growth, Dubai World, said it wanted more time to pay some of its roughly $60 billion in debt.

The UAE’s official WAM news agency said the central bank notified Emirati banks and foreign banks with branches in the country that it would make available “a special additional liquidity facility linked to their current accounts at the central bank.’’ The statement said the facility can be drawn upon at a rate of 50 basis points - half a percentage point - above the three-month Emirates interbank offered rate.

International investors reacted with shock to Dubai World’s announcement Wednesday that it would ask creditors to delay repayment of its debt and that of its real estate arm, Nakheel, until at least May. Nakheel has a $3.5 billion bond due in December.

The company’s roughly $60 billion in debt makes up the brunt of the at least $80 billion Dubai owes as a result of a meteoric decadelong growth boom that saw the city-state transformed into a Middle Eastern Las Vegas, New York, and Los Angeles all wrapped into one. Dubai World was a key driver of that growth, with interests ranging from ports to real estate.

Dubai officials have gone to neighboring Abu Dhabi, the oil-rich home to the federal government, for a series of meetings. Some analysts have speculated the timing of Dubai World’s announcement - on the eve of a three-day Islamic holiday - caught even Abu Dhabi’s rulers by surprise, putting them under pressure to act decisively in a bid to shore up confidence in the country’s banks.

Emirati banks are believed to be shouldering a large chunk of Dubai’s debts, and international ratings agencies have either downgraded the ratings of some of the country’s banks or placed them on review for further downgrades.