Abu Dhabi's $10 billion financial aid to fellow United Arab Emirates member Dubai to meet debt obligations was in the form of bonds, on similar terms to a $10 billion bond issue to the UAE central bank in February.

The February bond issue is for a five years and pays a coupon of four percent per annum.

The loan is based on the same terms as the first tranche of the $20 billion bond, a source close to Dubai's government, who did not wish to be identified, told Reuters.

Abu Dhabi gave Dubai the surprise lifeline on Monday -- the same day a $4.1 billion Islamic bond issued by Dubai property developer Nakheel came due -- helping it stave off a default and cheering markets.

Dubai at the time said it was a government-to-government arrangement without giving details.

UAE Foreign Minister Sheikh Abdullah bin Zayed al-Nahayan, said in remarks to the Jordanian state news agency on Tuesday the money was given against interest-bearing bonds.

An analyst said the news that it was a bond issue indicates that the handling of the debt problem was in line with the right practices.

The fact that the $10 billion is in the form of loan is a normal, healthy development, said Philippe Dauba-Pantanacce, senior economist at Standard Chartered in Dubai.

One major issue Dubai has been facing with its debt problem is certainly the mismatch in the various maturities, with a lot of leverage with short term maturities in front of projects with long term cash generation prospects, he said.


Sheikh Abdullah said the move displays the UAE federation stood united in the face of Dubai's crisis and expressed optimism about the capability of Dubai to reach satisfactory solutions with its creditors -- international banks.

The move answered doubts about the strength of the union and the dynamics of support that Abu Dhabi has traditionally extended to fellow federation members. The UAE central bank snapped up half of the $20 billion bond program launched by the government of Dubai in February.

The aid did not come late, he said. Those who question the solidarity of the seven (UAE) emirates do not know the truth of the federation.

Dubai's announcement on November 25 it had requested a standstill on $26 billion debt owed by state-owned conglomerate Dubai World , the owner of Nakheel, raised concerns about the health of the UAE economy and the support Dubai had from Abu Dhabi, the OPEC country's top oil producer.

The surprise rescue helped Dubai World repay the property unit's bond on Tuesday.

The rest of the funds from Abu Dhabi will be used to support Dubai World until the end of April. With the bond repayment out of the way, Dubai World must now agree a standstill with creditors to give it time to restructure.

If it fails to reach an agreement it may face bankruptcy.

The debt in itself should not be seen as an issue per se. A proper management of the debt is crucial though, Dauba-Pantanacce said.

(Reporting by Inal Ersan and Rachna Uppal)