Abu Dhabi invests in chip firm, Dubai should be next (Re-post)

Abu Dhabi is paying $1.8 billion to buy Singapore-based chip maker Chartered Semiconductor, taking advantage of relatively depressed global asset prices. Yet a far more logical home for its surplus oil wealth would be to invest heavily in neighbouring Dubai.

The commercial logic from the standpoint of both Abu Dhabi and Dubai is overwhelming. Abu Dhabi knows and trusts its neighbour and has admired its entrepreneurial flair for years. Asset prices in Dubai have sunk during the recession since last September and must represent an excellent deal in many cases.

From the perspective of Dubai the big choice is whether to gradually pay off a debt pile that could now exceed $100 billion, something that will take many years but is still possible as a highly profitable regional port, logistics, financial and trading centre, or to sell equity to Abu Dhabi and greatly accelerate this process.