What does $10 billion buy? For the oil-rich emirate of Abu Dhabi, which recently came to the rescue of its heavily indebted neighbor Dubai, the answer seemed to be stability as well as political and commercial influence. But the cost of those precious commodities could be set to rise dramatically.
Within days of Abu Dhabi’s December bailout, Dubai renamed its new landmark 160-story tower the Burj Khalifa, in honor of Sheikh Khalifa bin Zayed Al Nahyan, the emir of Abu Dhabi. The assistance also calmed financial markets in the Gulf and around the world. Dubai’s financial condition appears to have deteriorated in subsequent weeks, however, fanning fears of a wider economic fallout in the region and prompting fresh speculation about whether, and under what conditions, Abu Dhabi will provide additional support.
Dubai World, the emirate’s flagship holding company, is seeking to negotiate a standstill agreement with lenders on $26 billion in debt after narrowly averting a default in December. The rescue came in the form of a $5 billion purchase of bonds by the Abu Dhabi central bank and a separate $5 billion purchase of bonds by the National Bank of Abu Dhabi and Al Hilal Bank, an Islamic lender owned by the government of the United Arab Emirates. Dubai’s debt woes extend well beyond that one company, though. Government-related entities have an estimated $6.6 billion in debt coming due this year and as much as $24 billion in 2011, according to estimates by bankers and ....