Pumping his fist into the Paris air, Sheikh Abdullah bin Zayed Al Nahyan, an Abu Dhabi royal, celebrated the award of the 2020 World Expo to Dubai. A Dubai counterpart returned the favor three weeks later, hailing Abu Dhabi’s role in securing the event.
The backslapping late last year signaled the ever-closer relationship between the sheikhdoms at the core of the seven-member United Arab Emirates, one a fast-paced finance hub, the other the more conservative seat of political power. It’s also easing concerns over how Dubai will resolve $30 billion of debt maturing this year, two-thirds of which Abu Dhabi stumped up to prevent a default as the 2009 crisis froze credit markets.
“Better ties mean the refinancing or rollover process will likely go smoothly,” said Montasser Khelifi, a senior manager at Quantum Investment Bank Ltd. in Dubai. “There will be more confidence in Dubai credit, and more participation in its refinancing going forward.”
With its skyscrapers, malls and an airport that connects Europe, Africa and Asia, Dubai is the better-known face of the U.A.E., a desert federation squeezed into a corner of the Arabian peninsula between Saudi Arabia and Oman.
Yet it’s Abu Dhabi that packs the political punch, backed by its dominance of the federation’s crude oil, which accounts for about 6 percent of global proven reserves, and its economy, about twice the size of Dubai’s.
Extension of Maturities
As $10 billion of debt provided by Abu Dhabi and fully subscribed by the U.A.E. central bank comes due Feb. 22, the cost of insuring Dubai’s debt traded at 215 on Feb. 4. That’s down from a record 977 basis points in February 2009, at the height of its financial troubles, according to data provider CMA. Dubai’s benchmark stock index rose 1.7 percent today.
“With the emirates working together, it suggests that the maturities will most likely be extended,” said Abdul Kadir Hussain, chief executive officer at Mashreq Capital DIFC Ltd.
The burgeoning kinship being reflected in markets is also evident elsewhere. Dubai’s ruler Sheikh Mohammed Bin Rashid Al Maktoum took to Twitter last year to urge people to join him in thanking Abu Dhabi’s Sheikh Khalifa Bin Zayed Al Nahyan for giving “the U.A.E. his time, effort, life, day and night.” Sheikh Khalifa, who suffered a stroke last month, is the U.A.E.’s president, while Sheikh Mohammed is vice president.
The compliments show Dubai is attempting “to secure its financial and political health so that they don’t have to go through the same uncertainty again,” said Lori Plotkin Boghardt, a fellow in Gulf politics at the Washington Institute.
Abu Dhabi also gains from a financially healthier Dubai -- its economy contracted 5 percent in 2009 and property prices declined as much as 50 percent from their 2008 peak. Both emirates “want to band together and enhance their political and economic security,” Boghardt said.
Sheikh Khalifa, born in 1948, and Sheikh Mohammed, born a year later, are expanding ports, building roads and developing real estate to support the Expo and diversify away from oil. Dubai alone will need to spend $8 billion on infrastructure ahead of the Expo, Sheikh Ahmed bin Saeed Al Maktoum, head of its Supreme Fiscal Committee, said in November.
Bonds between the two ruling families haven’t always been this strong. A dispute over Jebel Ali and surrounding land between Dubai and Abu Dhabi sparked a three-year war that ended in 1948, according to Frauke Heard-Bey’s book entitled “From Trucial States to United Arab Emirates.”
Over time, common ties brought them together and Britain’s withdrawal from treaties to protect the so-called Trucial State spurred the creation of a six-member U.A.E. in December 1971, according to Sheikh Mohammed’s official website. Ras Al-Khaimah joined the next year and about five years after that the armed forces were brought under a single command.
To this day, however, Dubai and Abu Dhabi have their own governments, airlines and financial markets. It took the 2009 crisis, when credit evaporated and property prices slumped by as much as 65 percent, to underscore where the real power lay and the need for closer unity, Boghardt said.
Aluminum companies in Abu Dhabi and Dubai announced a merger in June last year, while the emirates’ stock markets are studying an alliance. Expo buildings will rise on a site equidistant between the center of Dubai and the border with Abu Dhabi.
“We’re seeing some consolidation on a federal level, and we’ll probably see more,” Ahmad Alanani, Dubai-based managing director for the Middle East at Exotix Ltd., said by telephone.
The Expo’s infrastructure will link the emirates’ cargo and transport facilities, creating an “industrial corridor,” said Khatija Haque, Emirates NBD PJSC’s head of research for the Middle East and North Africa. Dubai’s Jebel Ali Port is the world’s largest man-made harbor, according to its website. Abu Dhabi opened its 26.5 billion-dirham Khalifa Port in 2012, less than 100 kilometers (62 miles) to the southwest.
“It’s no longer just about Dubai,” said Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai. “The issue of national unity has become paramount and that has been reflected in a number of initiatives, topped by the bid for Expo 2020.”
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