Abu Dhabi gives Dubai $10 billion

Just when we had presumed that Dubai would be left to sort out their debt by themselves, their neighbour Abu Dhabi has stepped in to helped it out... with a $10 billion handout.

In the past, Infra MENA had speculated that Abu Dhabi was positioning itself to take advantage of Dubai's financial crisis, by cherry-picking some of the emirate's premium assets, but now the capital of the United Arab Emirates appears to have decided to aid Dubai.

According to news sources, $4.1 billion of the $10 billion will be used to bail out the government-owned investment company Dubai World, whose property development company Nakheel needed the money to pay off investors.

Positive outcome?

Unlike Dubai, where its wealth has mainly come from its property market, Abu Dhabi has oil reserves and as such, is one of the world's richest and most stable cities. It is rumoured to hold $800 billion in sovereign wealth.

It is unsurprising then to learn that news of the payment boosted share markets in the United Arab Emirates with Dubai's main share index rising by 10 percent, whilst Abu Dhabi's rose 7 percent.

In a statement, the chairman of Dubai's Supreme Fiscal Committee Sheikh Ahmed bin Saaed al-Maktoum said, "The government of Abu Dhabi has agreed to fund $10 billion to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World.

"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."

He also announced the implementation of new bankruptcy law, "This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations," he said.

The loan, which was designed to be compliant with Islamic law which prohibits interest payments, has been described as a "crucial and essential lifeline", although it is doubtful that Abu Dhabi will not want something in return. 

Abu Dhabi has already begun to secure itself some of Dubai's most lucrative assets. The emirate already has majority stakes in the Burj Dubai skyscraper and the Emirates airline, both crown jewels in Dubai's treasury. More acquisitions could see Abu Dhabi solidify its regional power base, despite being the hub of influence in the UAE.

Relevant articles:

The Dubai crisis: What is Abu Dhabi going to do? | The Dubai debt crisis | Abu Dhabi puts $1tn into infrastructure

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