The governments of Abu Dhabi and Dubai are discussing ways to prop up Dubai's economy by linking up assets in the two emirates, with Abu Dhabi's state fund Mubadala likely to play a key role in any deal, three sources familiar with the matter said. Some economic sectors have come to a near standstill in Dubai during the coronavirus outbreak, and it faces its most severe downturn since a 2009 debt crisis. It lacks the oil wealth of Abu Dhabi to cushion the blow. Abu Dhabi bailed out Dubai after the 2009 crisis with a $10 billion government loan, which was subsequently rolled over, and $10 billion in bonds that Dubai issued to the central bank. One of the sources said any support from Abu Dhabi agreed now would be "orchestrated through mergers of assets where Abu Dhabi and Dubai compete directly or where they have joint ownerships". "The most likely deal to happen in the near term is a merger of the local stock markets," the source said, adding that bank mergers were also possible. A second source confirmed the talks and said Mubadala, which manages around $230 billion in assets, would make "a big move into Dubai", but gave no details. Mubadala declined comment. Abu Dhabi and Dubai did not respond to requests for comment on the talks. The two emirates have a quiet rivalry. Dubai has developed quickly to become the Middle East's tourism, trade and business hub, while Abu Dhabi is the UAE's political capital because of its size and immense oil wealth. The consolidation of political power in Abu Dhabi began with the 2009 bailout. The first source said talks were happening in an "elegant way," without the appearance of a direct bailout. 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 was always involved whenever there was consolidation between the two emirates in the past. Strategic Assets Mergers took place after Abu Dhabi bailed out Dubai following the 2009 crisis, during which Dubai's property market crashed, almost forcing some state-linked firms to default on billions of dollars of debt. The UAE merged Dubai and Abu Dhabi aluminium firms to create Emirates Global Aluminium, held jointly by Mubadala and the Investment Corporation of Dubai. "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, and it has said Dubai's economy could contract by at least 5-6% this year if the measures last into the summer. Economic growth in Dubai was sluggish before the pandemic and hopes of benefiting from hosting the Expo world fair in October collapsed when the event was postponed to 2021. Dubai has in recent weeks been in discussions with banks for several fundraising options including loans and privately placed bonds, sources familiar with the discussions have said. It has also considered raising funds backed by road toll revenue, sources have said.
