Three sources familiar with the matter said that the governments of Abu Dhabi and Dubai are discussing ways to support the economy of Dubai by linking assets in the two emirates, while the Abu Dhabi government Mubadala Fund is likely to play a major role in any agreement.
Several economic sectors in Dubai stopped almost completely during the outbreak of the Corona virus, and the emirate is facing the most severe economic downturn since a debt crisis in 2009. Dubai lacks the oil wealth Abu Dhabi possesses to mitigate the negative repercussions.
Abu Dhabi provided support to Dubai after the 2009 crisis with a government loan of $ 10 billion, which was later extended, and bonds worth $ 10 billion issued by Dubai to the central bank.
One of the sources said that any support from Abu Dhabi that is now agreed upon will be "coordinated through mergers of assets in which Abu Dhabi and Dubai compete directly or where they have joint ownership."
"The most likely deal that will take place in the near term is the merger of the local stock markets," the source added, adding that it is possible that banks will merge as well.
A second source confirmed the talks and said the Mubadala Fund, which manages assets of about $ 230 billion, would make a "big move in Dubai", without giving details. Mubadala declined to comment, and Abu Dhabi and Dubai did not respond to requests for comment on the talks.
A quiet competition is taking place between the two Emirates. Dubai quickly developed into a center for tourism, trade and business in the Middle East, while Abu Dhabi is the political capital of the United Arab Emirates because of its size and vast oil wealth. Abu Dhabi's political clout began with the support it provided in 2009.
The first source said that the talks are taking place "in an elegant way" without taking the appearance of direct financial rescue.
The UAE said on Wednesday it would review its government’s structure and size with a view to being “more agile and resilient”.
"We may merge ministries ... and change bodies," said Vice President of the Emirates and Ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum, after three days of hypothetical meetings on the country's strategy after the Corona virus.
A third source said Mubadala would likely be involved "at some point" because the government fund always participates when there has been any merger between the two emirates in the past.
Strategic assets
The UAE has witnessed mergers between the two Emirates after Abu Dhabi provided financial support to Dubai after the 2009 crisis, during which the Dubai real estate market collapsed, forcing almost some of the government-linked companies to default on billions of dollars in debt.
The UAE merged the aluminum companies in Dubai and Abu Dhabi to establish Emirates International Aluminum Company, jointly owned by Mubadala and the Dubai Government Investment Corporation.
"We have already seen a pattern of mergers and this will accelerate now ... These financial bailouts will be designed in particular through Abu Dhabi acquiring stakes in strategic assets owned by Dubai. This will happen over time," the first source said.
Dubai-based Capital Economics said Dubai was the most economical economy in the Middle East and Africa at risk of economic damage caused by measures aimed at curbing the spread of the Corona virus, and said that Dubai's economy could shrink by at least five to six percent this year if these measures continued until summer.
Informed sources have said that Dubai has had discussions in recent weeks with banks regarding a number of financing options, including loans and private bonds. Sources said that they are also studying fundraising supported by the road toll revenue.
Dubai's economic growth slowed before the pandemic and hopes to benefit from hosting the World Expo in October were dashed when the event was postponed to 2021.