By   Vicky Kapur  on Tuesday, December 15, 2009

Source : Business 24/7

In a widely cheered move, the Government of Dubai yesterday authorised $4.1 billion (Dh15bn) to pay off current obligations due on the Dubai World/Nakheel sukuk, unequivocally quelling any speculation on its intent or ability to service debt obligations of strategically important entities in the emirate.

Sheikh Ahmed bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, acknowledged the "important support" of the Government of Abu Dhabi and the UAE Central Bank.

"Dubai is, and will continue to be, a strong and vibrant global financial centre. Our best days are yet to come," Sheikh Ahmed said. "We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices.

A Nakheel statement welcomed the support.

Dubai declared that it is "focused on addressing the concerns of Dubai World trade creditors" and "the remainder of the funds will be used for the satisfaction of obligations to creditors and contractors."

The announcement sent ripples of positive sentiment across the world. Local, regional and global investors voted with their wallets, with stocks surging on the news. The DFM index saw its best single-day jump to close with a 10.36 per cent gain, while the ADX index leapt by almost eight per cent.

Credit markets cheered the news with Dubai's five-year credit default swaps tightening by over 21 per cent to 423.8 basis points. The price of Nakheel's other bond – the $750 million bond maturing in 2011 – soared from $39/$40 to $80/$81, before settling at $70/$72.