ABU DHABI EYEING INVESTMENT IN DUBAI

C O N F I D E N T I A L ABU DHABI 001225

SIPDIS

DEPARTMENT FOR NEA/FO, NEA/ARP (BMASILKO) AND EEB
STATE PLEASE PASS USTR (BUNTIN)

E.O. 12958: DECL: 10/15/2018
TAGS: EFIN ECON EINV PGOV AE
SUBJECT: ABU DHABI EYEING INVESTMENT IN DUBAI

REFS: A) ABU DHABI 1221
B) ABU DHABI 1141
C) ABU DHABI 1079

Classified by Ambassador Richard G. Olson for reasons 1.4 (b,d).


1. (C) Summary. While the international financial crisis may bring a
slowdown to the UAE (Ref A),Abu Dhabi residents seem confident their
financial future is secure. Financial insiders report that the Abu
Dhabi Investment Authority remains flush with cash despite its paper
losses. Everyone is speculating about the future of Dubai, which is
rumored to face a near term liquidity short fall. If an Abu Dhabi
bailout is necessary, officials here will most likely handle with
discretion and subtlety. End Summary.

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ABU DHABI'S DEEP POCKETS...
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2. (C) All indications suggest that, despite significant declines in
world markets, the Abu Dhabi Investment Authority (ADIA) remains
circumspect about its holdings and enjoying a strong cash position.
One ADIA advisor told EconOff on October 15 that the response of
ADIA's leadership to recent market uncertainty (but certain losses)
is only slightly heightened from its usual "complete indifference."
Senior Citi officials told the Ambassador on October 20 that ADIA's
past "excess" liquidity may have been reduced to "abundant"
liquidity. Most Abu Dhabi residents feel confident that ADIA's
coffers will help the Emirate survive the international slowdown,
which has been part of ADIA's mandate since its creation.

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MAY HOLD THE KEY TO DUBAI'S SURVIVAL
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3. (C) The real and perceived strength of ADIA and related Abu Dhabi
investment bodies has shifted people's focus to the state of Dubai's
economy. A recent Moody's report claimed that state-owned entities
in Dubai have $47 billion in debt. While senior Citi officials
disputed the total in an October 20 discussion with the Ambassador,
rumors abound that Dubai Ruler Sheikh Mohammed Bin Rashid Al Maktoum
asked UAE President and Abu Dhabi Ruler Sheikh Khalifa Bin Zayed Al
Nahyan for a multibillion dollar bailout in early October. One
source said MbR asked for $80 billion, but left with only $25
billion. Others report it was closer to $15 billion. In a carefully
worded October 15 conversation with the Ambassador, Mubadala CEO
Khaldoon Al Mubarak said that Abu Dhabi would not let Dubai default,
but added that Dubai itself would never allow Dubai to fail. Abu
Dhabi Executive Council members Hamad al Hurr al Suweidi and Nasser
al Sowaidi have often stated that Abu Dhabi would never turn its back
on any of the other Emirates during times of need.


4. (C) Whatever the actual dollar value of a bailout, most observers
seem to agree that Abu Dhabi will act with diligence. Dubai Holding
Executive Chairman Fadel al Ali indicated that several Dubai Inc.
entities would require bridge financing to cover maturing debt and
existing obligations while international funding markets remained
frozen. Local banks would fill this temporary funding gap, according
to al Ali, with Abu Dhabi serving as the unstated deep pocket
boosting bank balance sheets. Dubai will need to substantially slow
its growth until the crisis passes. Citi officials told the
Ambassador that the Abu Dhabi Investment Council (ADIC) is one likely
source of funds to invest directly in needy Dubai companies, as it
has a clear domestic investment mandate (unlike ADIA).


5. (C) Comment: Predicting Dubai's demise has long been a pastime of
Abu Dhabi residents, who may have been jealous of their neighbor's
success. However, despite Dubai's tight financial circumstances and
Abu Dhabi's relative wealth, there is no indication that the rivalry
between the two emirates will keep Abu Dhabi from helping if needed.
As the Deputy CEO of the Abu Dhabi Securities Exchange told EconOff,
"Dubai is the heart of the Gulf. If you stop the heart, the body
will die."


6. (C) Comment continued: Abu Dhabi will seek to aid its ailing
neighbor without setting a precedent that could institutionalize
moral hazard in Dubai. Abu Dhabi will also be careful to avoid
taking steps that could endanger the credit risk profile of the
Emirate itself and its growing corporate sector, as they require
substantial debt finance to fund development through at least the
next decade. End comment.
OLSON