The
Abu
Dhabi Government is still considering
whether to channel $4bn of its aid to
Dubai
through two local banks or whether to lend it the money directly, a
banker said
on Tuesday.
"It hasn't
been decided yet," said Lim Say Cheong, executive vice president and head of the
executive office at Al Hilal Bank, which is owned by the Abu Dhabi Investment
Council.
Al Hilal
and another government-controlled Abu Dhabi bank, the
National Bank of Abu
Dhabi (NBAD) agreed in late November to buy $5bn in 5-year bonds
from Dubai as part of efforts
to help the heavily indebted emirate and the companies it controls avoid
defaulting on an estimated $87bn in debt. The bonds pay an annual
interest
payment of 4 per cent.
The banks
purchased $1bn of those bonds immediately after the deal was announced
on Nov.
25. Later the same day, Dubai
announced that it was appointing its own expert to manage Dubai World's debt
restructuring and that the company would be seeking to delay repayments
to
creditors.
The news
sent shockwaves through global markets, helping to trigger the recent
crisis
over government debt
in Greece
and other European countries. Amid concerns that its own borrowing rates
would
rise as investors questioned assumptions about the willingness of
governments
around the region to support government-owned companies' debts, Abu
Dhabi agreed to increase the amount of Dubai bonds it would buy
to $10bn.
It has
remained unclear whether NBAD and Al Hilal would still purchase the
remaining
$4bn in bonds they agreed in November to buy. NBAD said in January that
its
contract remained in place.
But some
analysts and sources close to the Dubai Govenrment said Abu Dhabi had
decided to assume the banks'
purchase commitments itself, with the Abu Dhabi Department of Finance
making
the purchase directly.
Sources close
to the Abu Dhabi Government, however, said that Abu Dhabi instead
preferred to route the
purchase through its banks in order to ensure that the transaction
remained
strictly commercial and was not viewed as a bailout.
Abu Dhabi has
made no official statements on its agreement
to buy $10bn in Dubai
bonds. The deal represents the second such rescue of Dubai . In
February, 2009, the Central Bank
bought $10bn in Dubai
bonds.
Each of the
two banks now holds $500mn in Dubai
bonds. NBAD's latest financial
statement lists the bonds, without mentioning
Dubai by name, as an asset it intends to hold until they mature. While
the cost
of insuring Dubai
debt has soared since Nov. 25, NBAD's statement values the bonds at
their face
value, or 1.837bn dirhams.
"We don't
see it as Dubai
risk," said Abhijit Choudhury, NBAD's
chief risk officer. Mr Choudhury emphasised
that NBAD considered the
bond purchase a fiduciary transaction that was commercially
acceptable.
