On the Abu Dhabi Put

So Abu Dhabi came to the aid of its “Cousin Eddie” emirate neighbor, Dubai, after all (I’ve been watching Christmas Vacation a lot recently – the image seems appropriate). According to FT Alphaville, Abu Dhabi is providing $10Bn. $4.1Bn for the sukuk, the rest to get Dubai World through 4/30/10. The condition being that a standstill has to be agreed to by then.

That sounds a little like a covenant term to me. Which makes me wonder exaclty how long does Dubai have that $10Bn to play with. Is it 30 days? 60? Will they spell that out or will we find out some time after New Year’s, the hard way?

And here’s something else: the financing from Abu Dhabi is being characterized as a loan. Which means there have to be terms/conditions. What are they? How will they be tested? I imagine since a lot of the financing was project-based commercial real estate financing, things like debt service coverage (DSC) and loan-to-value (LTV) would come into play. I’d love to see what those tests would be now versus what they were when they started these projects.

But these projects are so unique, so extraordinary, who would have the appetite to take them on? And what price? We’re beyond haircuts, now. Haircuts on asset and debt values were for last year when you still had a market to buy/sell these kinds of things.

Someone is going to get scalped – big time. It’s just a question of who and how soon.

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Filed under finance, government, macro, Markets, Way Forward

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