The last-minute renaming of the Burj Khalifa underlines Dubai’s new reliance on Abu Dhabi
The Dubai government insists the worst of its financial troubles are behind it, but that optimism is about to be severely tested as two of the emirate’s most important state bodies turn to the markets to help fund major projects.
Dubai Electricity & Water Authority (Dewa) and the Roads & Transport Authority (RTA) are both seeking long-term finance, for an independent power and water project at Hassyan and for the Dubai Metro respectively.
Bankers have long urged Dubai to use long-term funding for projects, rather than having to refinance loans in the more volatile short-term loans market. It has taken years, but Dubai has finally seen the logic of the approach taken by most of its wealthier neighbours.
Yet it may be too late. The messy restructuring of Dubai World’s debts in late November left investors nervous about the value of guarantees from the Dubai government – guarantees which are crucial for the kind of financing the RTA and Dewa are looking for.
Coupled with that, a Dubai government announcement in December that all government bodies, including Dewa and the RTA, must transfer surplus cash to a central fund, has raised suspicions that it is raiding its cash-generating assets to pay off its debts.
Rather than a guarantee from Dubai, investors say they are now likely to insist on one from the federal government for any large financing deals, particularly as Abu Dhabi has shown itself willing and able to bail out struggling state firms.
The last-minute renaming of Dubai’s record-breaking tower as the Burj Khalifa, in honour of the Abu Dhabi ruler, when it was opened on 4 January, underlines Dubai’s new reliance on its neighbour.
That relationship is unlikely to change soon. Abu Dhabi gave Dubai $25bn in 2009 and, while future loans and guarantees may be less public until Dubai’s economy recovers markedly, it may find it impossible to raise money without them.