Comment The rising price of Nakheel's bonds is one of the clearest indications yet that Dubai is getting the upper hand on the financial crisis.
Rising price is a clear indication at last of progress for Dubai
The recovering price of Nakheel's bonds is one of the clearest indications yet that Dubai is getting the upper hand on the financial crisis. Nakheel's debt long ago became a litmus test for Dubai's ability to rescue its own companies. With property markets in decline, few believe Nakheel can get banks or investors to lend it the US$3.52 billion (Dh12.93bn) it needs to redeem bonds maturing four months from now. The money will have to come from Nakheel's owner, the Government of Dubai. Dubai has never promised it, but investors have long assumed that if Nakheel or any of Dubai Inc's companies had trouble paying the $70bn-odd they owe, the Government would step in. And if Dubai cannot manage it, then the UAE with its vast oil revenues was standing by. Six months ago, investor faith was wavering. Nakheel's bonds dropped so far that they were yielding roughly 85 per cent in annual payments. Dubai dispelled the uncertainty by announcing a $20bn bond programme, selling the first $10bn to the Central Bank. As time passed, though, those nagging doubts resurfaced. Dubai had raised $10bn, but it would not divulge how it was using the money. Did it still have enough, investors wondered. Was it willing to make Nakheel's bondholders whole? It is no coincidence, that the recovery in Nakheel's bond price comes in the wake of the establishment last month of the Dubai Financial Support Fund and the appointment last week of its board. Nakheel's bonds are benefiting from evidence that Dubai is making positive progress; Dubai will undoubtedly benefit in December if Nakheel does too.