Abu Dhabi provides $10bn bailout for Dubai

Abu Dhabi has provided its neighbour Dubai with a surprise $10 billion bailout to help the state-owned Dubai World pay off its creditors.

Around $4.1 billion of the funds will be used by Dubai World's property development arm Nakheel, which needs the money to pay back its Islamic bond which matures today (December 14th 2009).

Earlier this month, Dubai said it was seeking to restructure around $26 billion worth of debt, causing confidence in the country's economy to plummet.

But the Abu Dhabi bailout funds have helped the markets, with Dubai's benchmark stock index rising by about ten per cent, while Abu Dhabi's rose seven per cent, reports Reuters.

Dubai has also put in place a new bankruptcy law which will ring-fence prize assets such as airline Fly Emirates should the restructuring attempt by Dubai World end in failure.

Last week, analysts from Morgan Stanley estimated that the total amount of money that may have to be restructured by Dubai could reach almost $47 billion.