Abu Dhabi, wealthy capital of the United Arab Emirates, will "pick and choose" how to assist debt-laden neighbor Dubai, a senior official said on Saturday, after fears of a Dubai default sent global markets reeling.
"We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts," the official in the government of the emirate of Abu Dhabi told Reuters by phone.
Dubai's crisis exploded on Wednesday when the emirate, known for flashy lifestyles and the world's tallest building, said it would delay payment on debt issued by one of its flagship firms, angering investors and sending global markets sharply lower.
Selective assistance for companies in "Dubai Inc.," a network of quasi-sovereign industries, instead of blanket assistance, would serve a rude awakening to investors who for years assumed that the conservative Abu Dhabi provided a safety net for its racier neighbor.
"Some of Dubai's entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist," said the official, who declined to be identified because he is not authorized to speak to the media.
At stake is the $59 billion in debt held by government controlled holding company Dubai World and its property arm Nakheel, builder of palm-shaped islands for wealthy celebrities.
Dubai delayed payment on Nakheel debt by six months in a shock announcement, which came on the eve of a long holiday.
World leaders including Britain's Gordon Brown and French premier Francois Fillon said the global economy -- recovering from two years of financial crisis -- was now strong enough to deal with a shock of this magnitude.
And markets began to recover on Friday after banks outside the Gulf said they were not heavily exposed to Dubai debts.
India, which receives 10-12 percent of its worker remittances from the UAE, said on Saturday it would keep a close watch on the situation in Dubai but did not expect much impact on it.
In the Gulf itself, details of local banks' exposure to Dubai have begun to emerge.
Years of chasing business in Dubai's property boom means Abu Dhabi banks have built up an exposure to Dubai-based companies worth at least 30 percent of their loan books, senior bankers in Abu Dhabi said on Friday.
In most investors' minds, the question is not whether Abu Dhabi will support Dubai but when and how.
Abu Dhabi, which pumps 90 percent of the oil that make the United Arab Emirates the world's third-largest oil exporter, has already provided $15 billion in indirect support for Dubai through the UAE central bank and two private Abu Dhabi banks.
How much more support the emirate provides for its cash-strapped neighbor, however, will depend on how Dubai clarifies its stand on unresolved issues.
"Until things become clearer, it is very difficult to make any further investment decision on the bonds. Many things have to be clarified by Dubai," the official said.
The UAE central bank said it was closely watching events to ensure no harm results for the national economy, a spokesman for the central bank said on Saturday.
"The central bank is monitoring developments very carefully to ensure that there is no negative impact on the UAE economy," the spokesman told Reuters by phone.
Constitutionally, each emirate in the UAE is a separate legal entity within the loose federation, and each controls its own natural and financial resources. The federal government has no guaranteed access to those resources nor is it obliged to underwrite the liabilities of any emirate.
As part of Dubai's restructuring program, investors have been advised of a "standstill" in repayment of flagship real estate developer Nakheel's $3.5 billion Islamic bond, or sukuk, due for maturity on December 14.
Dubai World's $59 billion of liabilities as of August make up the majority of Dubai's total debt of $80 billion.
International banks' exposure related to Dubai World could reach $12 billion in syndicated and bilateral loans, banking sources told Thomson Reuters LPC.
A statement from the Dubai government is expected on Monday, when the markets reopen following an extended break for Eid, a Muslim religious holiday.