Dubai's future clouded in debt?

The Wall Street Journal reports ($)

Dubai is on a spending spree, and financial analysts are starting to wonder about the amount of debt the city-state is racking up.

Its oil production is dwindling, and its debt load is four times the average among other Persian Gulf states. Credit-rating companies are asking for more information to determine how sound the government really is.

"From published documents, it is difficult to get a picture of the complete financial situation," said Standard & Poor's analyst Farouk Soussa. "The transparency isn't good."

One of seven emirates making up the United Arab Emirates, Dubai, like other Middle East governments, has been on a deal-making binge. Companies owned or backed by the government have signed agreements or made plays for billions of dollars in assets this year, including stakes in American and European stock exchanges, a Las Vegas casino operator and, most recently, a chunk of Sony Corp. Part of Dubai's deal-making is financed by debt.

At the same time, other Dubai entities have launched expansion plans relying on public borrowing. Nakheel, a government-controlled company building a giant, palm-tree-shaped island development, placed $750 million in bonds this month to finance its plans. Government-owned Jebel Ali Free Zone recently listed 7.5 billion dirham ($2 billion) of bonds.
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Dubai also has taken a more-complex approach to investing overseas. Most other deal-making countries have used massive investment authorities to pursue their deals. The Abu Dhabi Investment Authority, for instance, bought a $7.5 billion stake in Citigroup Inc. last month. In contrast, Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum, has entrusted a cadre of lieutenants to run his own and his government's business interests. They often compete with one another and hunt for deals independently, but they all ultimately answer to Sheik Mohammed.

The government association has helped a handful of Dubai corporate entities get high credit ratings. The assumption is that Sheikh Mohammed or his government will come to the rescue in a pinch. And if Dubai gets overextended, analysts expect the emirate's much-richer cousins in Abu Dhabi will lend a hand. Abu Dhabi is the capital of the U.A.E., and its ruler is the country's president. Sheikh Mohammed is prime minister.
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As its oil supplies dwindle, Dubai has diversified its economy into financial services, tourism and real-estate development, among other pursuits. Those revenue streams and their underlying assets are difficult to pin down without access to government books.

Intriguing. Emphasis added. If it is true that Abu Dhabi will step in in the event of insolvency we have the makings of an overinvestment problem like that which fueled the real estate crisis in the US in the eighties.

In a graphic accompanying the article Abu Dhabi's sovereign rating is given as AA/stable/A-1+. Abu Dhabi's debt as a percentage of GDP is 2.9%. Dubai's sovereign is "not available." Its debt as a percentage of GDP is 41.8%.