WAM hit the African & Eastern

WAM, the official UAE news agency, is as usual succinct and incisive in its analysis of the federal bail-out of Dubai. (Highlights highlighted)

WAM Dubai, Feb. 23, 2009 (WAM) -- Business and economic personalities believe that the launching of US$20 billion long term bond programme by Dubai Government, reflects the UAE economy's high-level of credibility and refutes the allegations surrounding the government's ability to live up to its financial commitments.

They said Dubai is highly dynamic to a level that it is capable of surmounting any economic crisis. They lauded the UAE Central Bank for taking the step to fully subscribe half of the total bond. They said by taking such a step the Central Bank wanted to issue a clear message to all doubting Thomasses that the protection of the UAE national economy is uniform and never discriminate against any emirate. Some of them believe that local governments and local and foreign banks would subscribe for the remaining half to make the whole initiative a great success.

They said the fixed interest rate on each paper is close to the one fixed on US government bond and this shows that that the risk rate of Dubai's bonds is comparatively lower. They therefore expect this move to reflect positively on local bourses and banks in the shortest possible time.
Government of Dubai Sunday launched a $20 billion bond programme to meet its financial obligations and press ahead with development projects. The first issuance of US$10 billion was fully subscribed by the UAE Central Bank. The bond is an unsecured fixed rate paper yielding 4 per cent per annum and has a five year maturity.

This issuance will provide Dubai Government with the necessary liquidity to substitute the liquidity that has dried up globally in the last 12 months or so and accordingly meet all upcoming financial obligations that are needed by the administration.

Major UAE Arabic dailies, which run reports on the issuance of the bond, all agreed that the Dubai government move was timely and a step in the right direction as it reflects the strength of the emirate's economy and its ability to continue to honour all its obligations and commitments.

So, why the bail-out, if Dubai is so "dynamic" it can surmount any economic challenge? And does anyone want to trade my US government bond for "comparatively lower" risk Dubai Inc debt?

This will certainly erase refinancing doubts over Dubai, but anyone who thinks Dubai is out of the woods yet is mad. Bankruptcy may have been averted, but a grim recession is still on the cards.

The interesting part is this:

Commenting on the move, the Secretary General of the Dubai Economic Council (DEC) said the long-term bond programme is a best international practices particularly in the light of the current global meltdown stemming from the global financial crisis, adding that the programme will deepen the UAE bond market which, for a long time now, is being advocated by a number of reputable economic experts and personalities.

Lets hope so. Who knows, maybe this could still prove a long-term boon if the regional debt markets are developed further. Sovereign issuance would surely help by setting a benchmark, but you would then need private investors taking part, not just the UAE central bank dictating the yield.