Everyone in Dubai is waiting to hear the details of a financial bailout from Abu Dhabi – or “assistance” package, as it is being called by the local business and finance community.
The Dubai government rocked global financial markets by announcing a week ago that state-controlled Dubai World, an investment company, was seeking a six-month standstill on credit payments.
Investors subsequently were alarmed when the head of the Dubai finance department said the government never intended to guarantee Dubai World’s $59bn in debt, the lion’s share of the city state’s borrowings, which are estimated at up to $100bn.
Consumers and investors were left further confused by statements from Abu Dhabi, the oil-rich capital of the United Arab Emirates, that its government will “pick and choose when and where” to alleviate Dubai’s financial woes.
Most believe that means taking part ownership of key assets rather than the “blank cheque” option of buying more Dubai bonds.
On Thursday, Standard & Poor, an international ratings agency, said it had cut the credit ratings of six Dubai government-linked companies to junk status.
S&P said it had taken the move as the likelihood of extraordinary support from the Dubai government appears “low”.
Advisers to Sheikh Khalifa bin Zayed Al Nahyan, the ruler of Abu Dhabi, would be failing in their jobs if they did not recommend pushing for a stake in the popular and successful Emirates airline, which is owned by Dubai, in return for the bailout.
Sources within the airline have told Al Jazeera that in the same week the Dubai World debt debacle came to light, Emirates generated $30mn in net profit and is on track for a $1bn profit this year.
While it remains a possibility that Dubai could give up a stake of the airline to Sheikh Khalifa, sources at Emirates believe it is highly unlikely.
But whoever thought dropping the Dubai World debt bombshell on the eve of Eid holidays and then going to ground was a smart strategy, may also see some value in this.
Abu Dhabi already has its own airline called Etihad which is trying to emulate the Emirates success story.
Between them, the two airlines have over 400 aircraft on order from Boeing and Airbus, a lofty figure sure to change fast if the ownership does too.
Although it seems unlikely, if it did happen then prepare for Boeing and Airbus stocks to take a beating; Emirates and Etihad are unlikely to go through with projected orders if they are no longer in competition with each other.
|Financial markets in the UAE are speculating on expected bailout plans from Abu Dhabi [AFP]
Abu Dhabi, which has in recent years become a thriving metropolis, has grown to increasingly compete with Dubai.
And with the global financial turmoil and the reported bailouts, it may just be gaining an edge.
During national day celebrations on December 2, Abu Dhabi’s attempt at the world’s largest fireworks display could be an indication that the tide in this relationship is turning.
A stunning show over the Emirates Palace is the kind of gimmick that was once the exclusive domain of flashy free-spending Dubai and not the fiscally and morally more conservative Abu Dhabi.
Nobody may ever know exactly what happens behind closed doors between Sheikh Khalifa and Dubai’s Sheikh Mohammed bin Rashid Al Maktoum as they work to rebuild the shattered confidence of investors.
Financial black holes?
Christopher Davidson, an analyst and author of Dubai: The Vulnerability of Success, told Al Jazeera: “Abu Dhabi is in a very difficult situation here; if Abu Dhabi does go in and tries and take care some of these [Dubai’s] bad debts then they could end up getting involved in potential black holes.”
But some analysts believe that Abu Dhabi, which is underpinned by 90 per cent of the UAE’s national oil revenues, can surely navigate some black holes – especially if the reward is a stake in some of Dubai’s key assets.
“If you look at Dubai there are a couple of components that are successful and will remain,” Davidson agrees.
“Emirates Airlines has a fantastic brand behind it as does the Dubai ports operation.”