Last month, Dubai caused a squall in the capital markets: the emirate stunned investors with a request for a standstill on some of the debts of Dubai World, a state-owned company. This week, Abu Dhabi, its oil-rich neighbour and the senior partner in the United Arab Emirates, started to clear up that mess, providing $10bn in funding to its cash-strapped neighbour.
During Dubai’s boom, investors had assumed that state-associated companies enjoyed implicit guarantees from Dubai. The botched announcement of the intention to restructure Dubai World’s debts therefore stoked fears about the solvency of the city-state. Guarantees from Abu Dhabi, with its hundreds of billions of dollars in savings, should soothe investors’ concerns.