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As Gregg noted earlier today, the cash-strapped Dubai investment authority known as Dubai World has received a $10 billion indirect bailout from Abu Dhabi, a fellow emirate of Dubai's and the capital of the United Arab Emirates. The Abu Dhabi bailout will go to the general Dubai Financial Support Fund, which aids struggling emirate companies, but Dubai World will receive a large chunk.

The announcement sparked a rally in shares of bonds issued by Nakheel, a real estate arm of Dubai World, which owed a $3.52 billion Islamic bond today and had seemed unable to pay the full amount as of days ago. Such a dramatic turn has market watchers chattering: the Financial Times' Alphaville blog notes that anyone who bought shares of the once-depressed Nakheel 2009 bond (or its sister bond due in 2011) has "made several large sacks of money."

Back in November, Abu Dhabi participated in a bond sale to help Dubai raise debt, but only for $5 billion, of which only $1 billion was remitted immediately. So what changed since then, and who stood to gain?

Abu Dhabi announced a $10 billion bailout today for its cash-strapped neighbor; the last-minute capital infusion allows Dubai World to pay a $3.5 billion Islamic bond that came due today.

The money will first be transferred to the Dubai Financial Support Fund, which supports struggling companies in the emirate, according to a statement released by the Dubai government. The first $3.5 billion will pay off the bond issue.

The remaining funds would also provide for interest expenses and company working capital through April 30, 2010 - conditioned on the company being successful in negotiating a standstill as previously announced.

The $10 billion will also be used to pay Dubai World's contractors, many of whom have long complained that they haven't been paid for their services.

I'm sure the Majlis is quite tardy to this party, but since we're just getting into the Gulf-financial-reporting game here, I thought I'd let the readers know that we've now discovered the National's Current Account blog, edited by Wayne Arnold. Undoubtedly a useful resources in the months to come.

Arnold blogged yesterday (and wrote in his column) that Dubai, and by extension the other emirates in the UAE, should not be expected to bail out Dubai World. Aside from the moral hazard argument, which we in the United States seem to have set aside for now, Arnold argues that an emirate-to-emirate-owned-corporation bailout just doesn't have any logic to it:

Some news articles on the situation have even suggested that Abu Dhabi would offer help directly to [Dubai World real estate arm] Nakheel, which demonstrates an extraordinary misunderstanding of the relationship of Nakheel to its parent, Dubai World, and between one emirate and another. This would be akin to, say, Germany moving to buy GM with state funds in order to prevent layoffs at Opel.

As a follow-up to Evan's Dubai post, I saw this headline in The National and thought it was a metaphor for Dubai World's sinking financial condition. But no: Apparently there's some concern that the Palm Jumeirah, the manmade island in the Persian Gulf, is physically sinking.

Nakheel -- the developer, and a subsidiary of Dubai World -- insists those concerns are unfounded; the company says the island won't sink more than 25mm over the next century. Still, not exactly the kind of PR the company needs right now, eh?

Keeping tabs on that nasty little debt situation in the Persian Gulf, the Wall Street Journal reports that the Dubai Financial Market's benchmark index dropped 6.4 percent today to 1533.36, its lowest close since March 19. The index has dropped 27 percent since Nov. 25, when Dubai World, the state-owned investment company, asked creditors for a six-month delay on interest payments. (Gregg wrote a brief primer on Dubai World last week.)

Investors are now watching Nakheel, a real-estate development unit of Dubai World that has a $3.52 billion Islamic bond maturing next week. Today, Nakheel posted a $3.66 billion first-half loss and reported that revenue had fallen 78 percent because of a slump in Dubai's property market, according to the WSJ.