UPDATE 2-UAE govt backs Dubai; Abu Dhabi help may lag

* UAE federal govt stands ready to aid Dubai – minister

* Abu Dhabi aid will come but reluctantly and with strings

* Dubai has not asked federal government for aid – minister

(Recasts)

Rania Oteify and Rachna Uppal

DUBAI, March 9 (BestGrowthStock) – The United Arab Emirates pledged
its support for Dubai on Tuesday but said the emirate had yet to
ask for federal help, which analysts said would come reluctantly
and with strings attached.

The UAE finance minister said the federal government would
support the emirate as it negotiates a plan to restructure $26
billion in debt and said he expected a deal to be finalised
soon.

State-owned conglomerate Dubai World [DBWLD.UL] is holding
informal talks with major creditors, which include HSBC and
Standard Chartered, in London this week as it finalises a deal.

Asked whether the federal government would support Dubai,
Sheikh Hamdan bin Rashid al Maktoum said: “Of course. Dubai is
part of the federation.”
Sheikh Hamdan, who is also deputy ruler of Dubai, said the
emirate had not yet approached the federal government for aid.

“The federation hasn’t reached that far, but the Emirates
are one entity and things will be resolved soon, God willing,”
he told reporters on the sidelines of a conference.

Dubai’s stock market (.DFMGI: ) was up for a fourth day on
Tuesday, while Abu Dhabi’s (.ADI: ) was up for a third on hopes a
debt deal might come soon. Five-year Dubai CDS prices stood at
487.4 from 479.6 at the close, according to CMA DataVision.

Abu Dhabi, the wealthiest and largest of the seven members
of the UAE federation, bailed Dubai out in December and has an
active role behind the scenes in current debt negotiations.

But the emirate, a pivotal player at the federal level, has
been pointedly silent on its plans regarding Dubai’s debt
restructuring. Analysts expect it to help again but in a modest
way, with little fanfare, and in exchange for more centralised
control.

“It will be calculated interference, and it will come with
some conditions,” said a prominent Emirati businessman in Abu
Dhabi.”Abu Dhabi does not want to give the impression that big
brother will always be there.”

Bankers familiar with the matter said the size of any
financial help from the Abu Dhabi government would determine the
size of the “haircut” creditors would have to take.

Abu Dhabi has already put limits on its aid.

Last year’s $10 billion bailout — which included $5 billion
from two Abu Dhabi-linked banks and came through a Dubai bond
issue — is conditional on Dubai World reaching a satisfactory
deal with creditors. About $5 billion of those funds have yet to
be released.

Abu Dhabi government officials declined to comment.

CONSEQUENCES

The fallout from Dubai’s debt crisis is being felt in Abu
Dhabi, with Moody’s downgrading seven government-related
entities late last week as they did not have an explicit, formal
guarantee of government backing.

Abu Dhabi, home to most of the UAE’s oil, dismissed the
downgrade, but analysts said it would not be pleased about the
impact Dubai’s debt problems were causing.

“Abu Dhabi is aware of the consequences and I suspect it is
working out the best thing for the UAE as a whole,” said the
head of a western bank in Abu Dhabi, who asked not to be
identified.

Dubai World shocked global markets in November, when it
requested a standstill on debt linked mainly to its property
developers, Limitless World and Nakheel, builder of Dubai’s
palm-shaped islands.

Bankers have said the restructuring plan is being delayed by
efforts to value the assets of the Nakheel unit. [ID:nLDE6271QB]

There is widespread expectation among creditors that Abu
Dhabi will ride to the rescue, as it did in December when it
helped Dubai avert an embarrassing default on an Islamic bond
linked to property developer Nakheel.

“Abu Dhabi will come in,” said a banker at a Gulf-based
creditor. “If anything goes wrong with Dubai World or Dubai, it
affects it directly. It may spill over in the region as well and
for three, four years who will come and invest in the Gulf?”

But others said Abu Dhabi would only show its hand if it
appeared creditors would drag Dubai World into default.

UAE Economy Minister Sultan bin Saeed al Mansouri said on
Tuesday that creditors should reach an agreement with the
conglomerate.

“If there is any plug pulling (by the creditors of Dubai
World), then Abu Dhabi will come in,” said a Dubai-based risk
analyst. “If lenders call default, then Abu Dhabi will want to
prevent that from happening. One, there is the issue of the UAE
reputation, and two, Abu Dhabi will want to say, if we can help
Dubai, rest assured we will look after our own.”

In a sign that Dubai entities were gearing to test the
market again, state-owned utility Dubai Electricity and Water
Authority (DEWA) said on Tuesday it planned to launch a $1.5
billion bond, to be completed in the first week of April.
[ID:nLDE6281AQ]

DEWA postponed the issue after Dubai World’s November
announcement.

Investing Analysis

(Additional reporting by Stanley Carvalho, Nicolas Parasie and
Shaheen Pasha; Writing by Amran Abocar, editing by Will
Waterman)

UPDATE 2-UAE govt backs Dubai; Abu Dhabi help may lag