(December 17, 2009) – Abu Dhabi once again has come to the rescue of its neighbor Dubai with a $10 billion bailout aimed at easing pressure on the poorer Emirate’s debt load.

Earlier this year, Abu Dhabi—the federal seat of the United Arab Emirates and the owner of the world’s largest sovereign wealth fund (SWF), the Abu Dhabi Investment Authority—agreed to purchase upward of $10 billion in Dubai-backed bonds following hints that Dubai’s sovereign wealth vehicles were having issues repaying debt. (To see ai5000’s June article on the problems at Dubai’s various investment vehicles, click here .) However, the debt issuance seemingly did little to stop Dubai’s hemorrhaging: In late November, the state admitted that it needs to restructure $26 billion in debt.

In response, Abu Dhabi has had to step in again, this time offering up a direct injection of $10 billion. Among other things, the injection will be used to repay a $3.5 billion Islamic bond issued by Nakheel, the state’s real estate development arm, according to The Wall Street Journal (WSJ).

Experts expect that the cash infusion will allow Abu Dhabi to retain more control over Dubai’s assets, and also will do little to change the basic issue of leverage in the diminutive Emirate. “Moving away from the debt repayment uncertainty, we focus investors’ attention back to fundamental economic and systemic challenges which have not changed materially,” Saud Masud, head of research at UBS in Dubai, told the WSJ. Furthermore, some are suggesting the Dubai Holdings—the private investment vehicle of the Emirate’s Sheikh, as opposed to Dubai World, which is ostensibly for the public—could be facing similar but unstated debt issues, having upward of $2 billion in debt due in 2010.