With a deadline to repay Islamic bonds issued by Dubai coming up, Dubai’s oil-rich neighbor Abu Dhabi has finally bit the bullet and pumped $10 billion into Dubai to starve off a default. The bailout send Dubai’s stock market soaring but don’t hold your breath.
I believe all the bailout did was to buy Dubai some time.
Frankly, Abu Dhabi was always going to help its indebted neighbor. Failure to do so would be like throwing the baby out with the bathwater. Abu Dhabi may be angry with the dirty bathwater that is Dubai but if they threw the water out, they would do great damage to the baby that is the United Arab Emirates (UAE). That was never going to happen.
However $10 billion is a long way from the $80 billion Dubai will need to need all its debts and I question the willingness of Abu Dhabi to throw another $70 billion into the mix. Before the crisis, most investors had “assumed” that the Dubai government would guarantee debts amassed by its chief growth engine, Dubai World. However when the crisis hit, Dubai government said that it would NOT guarantee debts by Dubai World. Would Dubai have done that if they had confidence the Abu Dhabi and the rest of the Emirates federation would back them?
No so don’t hold your breath, the Dubai debt crisis is a long way from being settled.