Dubai Bailouts Consume Abu Dhabi's $43B '09 Oil Wealth

DUBAI (Dow Jones), Dec. 14, 2009

Dubai's debt woes are becoming an albatross around the neck of oil-rich Abu Dhabi, which has committed the equivalent of almost 60% of this year's oil income to bail out its ailing neighbor, according to Zawya Dow Jones calculations.

Abu Dhabi, the largest of the seven emirates that make up the United Arab Emirates and producer of almost all the country's crude oil, will earn an estimated $43 billion this year from crude exports.

The figure--which excludes oil products and liquefied natural gas exports--is based on an average price of about $62 a barrel for the year so far and exports averaging 1.9 million barrels a day, according to Zawya Dow Jones estimates.

With Abu Dhabi's direct and indirect support to Dubai so far in 2009 at $25 billion, this is equivalent to nearly 60% of the emirate's oil income. The U.A.E., an Organization of Petroleum Exporting Countries member, holds almost 8% of the world's crude reserves.

"It's a huge chunk in terms of their oil income but I look at it from a sovereign wealth fund," said Kamel Al Harami, a Kuwait-based independent oil analyst. The Abu Dhabi Investment Authority, the emirate's sovereign wealth fund, is estimated to have assets of about $500 billion. But these funds are difficult to tap.

Dubai's debt problems may become a bigger challenge for the oil-rich emirate, which has ambitious plans to spend at least $100 billion in coming years on diversifying its economy by investing in key sectors such as chemicals, steel, aluminum, aviation and tourism.

Dubai rocked world markets in late November when it requested a freeze on $26 billion of debt payments by Dubai World in order to restructure the conglomerate. The emirate's total debt is estimated at $80 billion, with some estimates putting it well above $100 billion.

If further debt payment problems emerge in Dubai, Abu Dhabi may have to step in once again to inject additional funds, which may put a brake on some of its plans.

"We continue to see risk of further debt problems emerging in the coming months and quarters, particularly from Dubai Holding and Istithmar," investment bank EFG-Hermes said in a note.

On Monday, Dubai announced that it had received a $10 billion bailout from Abu Dhabi to pay part of the debt of government-owned conglomerate Dubai World and its struggling property unit Nakheel.

Today's $10 billion cash injection by Abu Dhabi comes after the emirate agreed earlier this year to provide as much as $20 billion in two tranches via the central bank, which it effectively controls. Of this, $10 billion has been paid out and two--majority Abu Dhabi government-owned--banks bought $5 billion in Dubai bonds in late November.

Oil is the main source of foreign export earnings for Abu Dhabi and the growing need to support Dubai financially could weigh on economic growth in the U.A.E.

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