'LET'S JUST PAY THIS THING OFF'

That evening, the weather in Dubai took an apocalyptic turn.
Clutching the proposed deal and other documents, a banker from
Moelis & Co, a U.S. investment bank that was advising Dubai,
climbed into a waiting helicopter and took off for the capital.

Expecting him in Abu Dhabi were officials of the highest
level, including Sheikh Mansour, half-brother of the ruler of
the UAE and one of the most influential people in the federation
today.

Rain and wind lashed the windowpanes of Dubai International
Financial Center as the officials huddled, waiting. The banker
had been instructed to call his team as soon as he left the Abu
Dhabi meeting. Three hours on, there was still no word from him.

"We were so nervous, none of us had eaten all day," says the
source familiar with the restructuring.

The phone call never came. Instead, they heard the returning
helicopter. Landed, the banker was whisked off into a meeting
room to confer with the two top officials of Dubai's Supreme
Fiscal committee. Finally, the rest of the team were called in.

To everyone's astonishment, Abu Dhabi was offering to pay
off the bond in its entirety.

"Abu Dhabi said, let's just pay this thing off until you
come up with a better plan," the source familiar with the
restructuring says. "They always said we are happy to help, we
just want to see a plan."

A NOD AND A WINK

With hindsight, perhaps the officials need not have been
surprised. Rightly or wrongly, lenders had always assumed Dubai
World's government links would ensure repayment. Dubai later
stated that its government had never backed the debts of
state-linked firms such as Dubai World, and blamed investors for
not reading the small print. But lenders put the blame firmly on
the government.

In the UAE, ruling families keep their private lives out of
the public domain aside from major weddings and funerals, and
questions about who's really pulling the strings make intriguing
gossip. But from a creditors' viewpoint they are crucial,
because the buck stops with the highest guarantor.

It's common practice in the Middle East for borrowing to
consist of loans signed with a nod and a wink on a 'name
lending' basis.

In Dubai "in a sense the red line, the differentiator
between the trader and the government institutions, became very
murky," says Mohamed Yasin, chief investment officer at CAPM
Investment in Abu Dhabi.

It's still uncertain how much Dubai's ruler, Sheikh Mohammed
bin Rashid Al Maktoum, knew about the growing debt crisis. Some
of those involved say he was only informed of the magnitude of
the debt problem very late in the game. In his rare comments on
the crisis, Sheikh Mohammed has maintained a stiff upper lip,
saying the problem has been overcome.

"No-one knew the magnitude of what was owed, then the
complexity of it," the former adviser to Dubai World says. "A
lack of experience -- and ego -- made it hard to admit defeat."

The emirate's transformation into a boom town had relied on
a generation of Emirati executives armed with big ideas and
Western business degrees. Dubai's model involved 'soft support'
-- free land, a high-profile appearance at the opening -- for
people who came up with a project and funded it themselves. So
they specialised in leverage to build "real estate, real estate,
real estate, but with a different flavour or headline," says
Yasin. State-linked firms borrowed at an alarming rate, with
little oversight or coordination. Corruption was rife.

"Nobody at the time was going to the Dubai government and
saying, 'this borrowing is happening based on the assumption
that you are going to settle if we don't pay the money,'" Yasin
says. "Who assumed that model? it was the lender."
So ultimately Dubai's debts were accrued on the assumption
that in the event of distress, the government -- or big brother
Abu Dhabi -- would pick up the tab. When Dubai's government
distanced itself from the problem, it gave the larger emirate
responsibility -- and power.

NO ILLUSIONS

In return for saving its 'kid brother' from the
embarrassment of default, Abu Dhabi's authority quickly became
apparent. In what was seen by some as a gesture of humility, in
January Dubai's ruler named the world's tallest structure Burj
Khalifa, in honour of Abu Dhabi's ruler and the UAE president,
Sheikh Khalifa bin Zayed al-Nahayan.

Seasoned UAE observers say the more outlandish rumours that
circulated in the months after the Dubai World debacle -- that
Abu Dhabi would swoop in and seize Dubai land and assets or that
the ruling families were embroiled in interpersonal rivalries --
were always nonsense.

"The ruling families have no illusions whatsoever about what
the role of each one is, who is the big guy and who is the
second in line and so on," Yasin says. "In my opinion, it was
the middle management, the second tier, the business people,
those who are not related to the ruling families but who work
for them, who generated these ideas."

Sometimes Abu Dhabi doesn't have to throw its weight around
because Dubai has realised what it needs to do without being
told.

The document for Dubai World's debt restructuring, seen by
Reuters and agreed to by most of its creditors this month,
outlines the city's plans to sell assets over eight years to
generate as much as $19.4 billion and lists "investment assets"
such as stakes in luxury retailer Barney's, Dubai-based Atlantis
Hotel, and casino operator MGM Resorts International among those
that could be included. Ports operator DP World is among the
"strategic assets" which may generate up to $11.8 billion if put
on sale.

Dubai's government has tightened the leash on borrowing for
state-linked companies. Where previously, they were able to
borrow unchecked, now they need to jump through a whole series
of hoops before being given the green light for a loan.

Almost two-thirds of Dubai World's debt is held by six banks,
four of them British: HSBC, Lloyds, Royal Bank of Scotland,
Standard Chartered, and local lenders Emirates NBD and Abu Dhabi
Commercial Bank.