Dubai fiasco: Game of chicken or palace intrigue?

RELATED NEWS Abu Dhabi throws Dubai a lifeline, terms uncertain Wall Street ends at 14-month high on Exxon Energy deal UAE central bank says to back local banks Dubai gets $10bn bailout from Abu Dhabi Sensex ends flat; banks, telecom, RIL dip, cement,pharma up

Abu Dhabi's last minute USD10 billion lifeline for Dubai on Monday was the climax of a power struggle between the two Gulf emirates, but it is hard to tell who blinked first.

Did Dubai, the brash commercial hub of the Gulf with its pharaonic construction projects, successfully call the bluff of its conservative oil-producing neighbour in the United Arab Emirates by threatening to let its giant conglomerate go bust?

Or did Abu Dhabi leave the glitzy financial centre dangling long enough to soften it up for concessions before throwing it a short-term life-saver for which the political and financial price has not been publicly spelled out?

There may be a more prosaic explanation: bumbling governance in a secretive region with opaque leadership.

"It could be that Dubai was playing a game of chicken: 'If you think that we're not going to default and we're not going to take everybody with us, you're mistaken,'" said a Dubai-based analyst, who asked not to be identified.

The cheque from Abu Dhabi may have saved Dubai for now, but confidence in the emirate is in tatters as investors wonder whether the past two weeks was a test of investor tolerance or just poor management.

Conglomerate Dubai World sent global markets tumbling on Nov. 25 when it asked creditors for a standstill to restructure USD26 billion in debt mostly linked to its property units, including an Islamic bond, or sukuk, maturing on Monday.

When the Dubai government said it would not necessarily take responsibility for Dubai World's debts, the news prompted fears of a second wave of global financial turmoil. That triggered a flurry of ratings downgrades, including of Abu Dhabi entities, and dealt a big blow to Dubai's reputation as a financial hub.

Less than three weeks later, Dubai said it had received funds from richer Abu Dhabi and planned to use USD4.1 billion to repay the Nakheel sukuk, while the rest would support Dubai World until April, assuming creditors agree a standstill.