Dubai's debt problems aren't over

Markets breathed a sigh of relief this week as oil-rich Abu Dhabi threw its fellow emirate Dubai a $10bn lifeline. The move takes the total support it has given Dubai this year to $25bn.

The $10bn will be used to settle a $4bn Islamic bond, due this week, issued by Nakheel, the property arm of state-backed conglomerate Dubai World. It will also fund Dubai World while it negotiates a restructuring of $22bn of debt.

"We've avoided a dramatic, chaotic and disorderly default," says Mohieddine Kronfol of Algebra Capital. But Dubai's problems look far from over. Its cash needs are "not going to go away", says John Sfakianakis of Banque Saudi Fransi.

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According to UBS, another $32bn of debt repayments are due over the next three years, while Morgan Stanley estimates that Dubai's overall public and quasi-public debt has reached $108bn, or 140% of GDP of which $46.7bn may have to be restructured.

A particular worry is Dubai Holding, the personal investment vehicle of Dubai's ruler Sheikh Mohammed, which has built up overall debts of almost $10bn. The upshot, says Goldman Sachs, is that this won't be the last tranche of aid from Abu Dhabi.