Responding to the government of Dubai’s announcement last Wednesday that it would seek to delay the debt payments of flagship company Dubai World, the U.A.E Central Bank announced Sunday that it plans to extend an additional liquidity facility to all local and foreign banks located in the U.A.E.
The U.A.E. Central Bank stated that it “stands behind” U.A.E lenders and that the additional facility will be available to qualified lenders at 50 bps above the 3-month EIBOR (Emirates Inter-Bank Offering Rate).
The move seems to be aimed at assuaging investor concerns before markets begin the new week, opening up locally on the tail of a long Muslim holiday.
The Central Bank’s full press release, in English and Arabic, can be read here.
In related news, copies of the Sunday London Times were removed from newsstands across the U.A.E. yesterday due to their intensive reporting of Dubai’s debt issues as well as their inclusion of a semi-scandalous 2-page spread of Dubai’s ruler Sheik Mohammed bin Rashid Al Maktoum.
The spread, which appeared alongside a story entitled “The sinking of Dubai’s dream,” depicted the Sheik sinking in a sea of debt. Though the Times was not provided a reason for the blocking of the newspaper, an Abu Dhabi official stated that the spread was “offensive.”
Lastly, amid all the hubbub, it’s worth noting that Dubai’s total outstanding debt is thought to be worth roughly $80 billion.
Considering we just came out of (or are still in?) a crisis in which the term “trillions” became firmly entrenched in our collective lexicon, we should breathe a sigh of relief knowing that Dubai can not by itself put the global financial system in the peril that it was in not so long ago.
The real threat is that this could occur elsewhere, particularly as central banks around the world begin tightening up their respective money supplies in 2010-11 and beyond. If events like this were to become more frequent, we could see the flight to financial safe havens that drained liquidity markets during 2008-09. But that’s a worst-case scenario, and if it’s anywhere, it seems far off, for now at least.
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