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Coronavirus: Abu Dhabi reportedly in talks to rescue Dubai economy

Emirates considering merging assets as Dubai's economy nosedives amid the pandemic
A general view of Business Bay area, after a curfew was imposed to prevent the spread of the coronavirus in Dubai on 28 March (Reuters/file photo)

UAE emirates Abu Dhabi and Dubai are in talks to support the latter's struggling economy through Abu Dhabi's state fund Mubadala, Reuters said on Friday citing multiple sources.

Oil-rich Abu Dhabi is set to prop up fellow emirate Dubai's economy by merging assets after Dubai has been hit by a severe economic downturn due to the coronavirus pandemic. 

Prior to the crisis, Dubai established itself as the Middle East's tourism, trade and business hub, while Abu Dhabi has maintained its status as the UAE's political and economic capital. 

The crisis is the worst since the 2009 debt crisis, when Abu Dhabi bailed out Dubai with a $10bn government loan and $10bn in bonds that the latter issued to the central bank.

According to one source, any potential support from Abu Dhabi would be "orchestrated through mergers of assets where Abu Dhabi and Dubai compete directly or where they have joint ownerships".

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"The most likely deal to happen in the near term is a merger of the local stock markets," the source told Reuters, adding that bank mergers were also possible.

A second source confirmed the talks and said Mubadala, which manages around $230bn in assets, would make "a big move into Dubai," but gave no details.

The UAE said on Wednesday it would review the structure and size of its government to make it "more agile and flexible".

"We may merge ministries and alter bodies. We will make changes," UAE Vice President Sheikh Mohammed bin Rashid al-Maktoum, who is also ruler of Dubai, said following three days of virtual meetings on the country's post-coronavirus strategy.

A third source said Mubadala was likely to be involved "at some stage" because the state fund had always been involved whenever there was consolidation between the two emirates in the past.

"You have already seen a pattern of mergers and this will now accelerate," the first source said. "Essentially these bailouts will be engineered by having Abu Dhabi taking stakes in strategic assets owned by Dubai. It will happen over time."

London-based Capital Economics has said Dubai is the most vulnerable of the economies in the Middle East and North Africa to the economic damage caused by measures to curb the spread of the coronavirus. It said Dubai's economy could contract by at least 5-6 percent this year if the measures last into the summer.