During the weekend, I met a couple who were formerly my neighbor at the hawker center. The husband is a business consultant from Malaysia and the wife is Korean. The couple met while they were studying in Canada. For this cosmopolitan couple, the world is their oyster. The last time I met them was about 1 year ago to say farewell as they left for Dubai. The pay in Singapore was good but the pay in Dubai was great!
When I asked them what they were doing back in Singapore, they told me some stories about Dubai. The economy grounded to a halt suddenly, expatriates simply left - without jobs some of them left without paying their rents, left their cars (with outstanding loans) at the airport and flew home. Dubai is now full of unoccupied condos, 3000 abandoned cars at the airport and an economy in crisis. Its richer neighbor Abu Dhabi had to bail it out by buying its bonds as the govt faced a liquidity crisis.
It was not too long ago when the images of lavish buildings in Dubai were flashed on the TV and this city state was the envy of the world. Its success was somewhat of an illusion built on credit.
Dubai's $10 billion bailout
United Arab Emirates steps in and buys half of the country's $20 billion long-term bond offering.
DUBAI, United Arab Emirates (CNN) --
The United Arab Emirates pledged $10 billion to prop up Dubai, one of its most ambitious members, Dubai's government said.
Dubai launched a $20 billion long-term bond program Sunday in an effort to cover loans that financed its aggressive development strategy.
The Central Bank of the UAE bought up the first tranche of the bond issue, $10 billion, Dubai said. The five-year bonds pay 4% per year.
"This is a clear step from the central government to back up Dubai," said Khald Masri, a partner in Rasmala Investment, a very active investment bank in the region. "The central government's step will help ease the tense situation in the local economy and markets."
Dubai admitted that it needed the Central Bank money to stay afloat as credit has dried up, though it couched the statement in financial jargon.
"This issuance will provide the Dubai Government with the necessary liquidity to substitute the liquidity that has dried up globally in the last 12 months and accordingly meet all upcoming financial obligations," it said. "This program will secure the necessary funding for Dubai to meet its financial obligations and continue its development program."
The bond is an unsecured fixed rate paper, Dubai said.
"The fixed rate at 4% per year is excellent," investment banker Masri said. "Dubai got the best deal in that, taking into account the conditions in the international markets."
But he warned there was "no way" Dubai could get as good a deal from international markets as it did from the UAE when it issues the second $10 billion in bonds.
The Dubai stock market rallied Monday, rising by 7.91%, with big bounces for stocks for semi-governmental companies, especially in the banking and real estate sectors.
Dubai, one of seven Gulf emirates that together make up the UAE, launched ambitious plans in the past decade to become a global hub for service industries such as information technology and finance as well as a tourist destination.
It lacks the oil reserves of other members such as Abu Dhabi, the capital of the UAE and its wealthiest member.
Dubai took out huge loans to finance its plans.
Moody's Investors Service warned in October that Dubai may need help from Abu Dhabi to pay for its debt. The emirate may have to refinance $15 billion this year in maturing loans and bonds, Moody's said.
Abu Dhabi, for its part, has invested around the world, buying a 75% stake in New York's iconic Chrysler Building last summer when oil prices were at their peak and helping to bail out the financial giant Citigroup with $7.5 billion at the end of 2007.
Abu Dhabi Investment Authority (ADIA) is the world's largest sovereign wealth fund, with an estimated $875 billion in assets, according to brokerage Morgan Stanley.
First Published: February 23, 2009: 12:47 PM ET