Dubai to borrow second $10bn

An agency to be set up to administer fund, with loans to be provided to government entities hit by the global crisis.

Dubai is preparing to borrow a second $10 billion.

ABU DHABI // Dubai is preparing to borrow a second US$10 billion (Dh36.73bn) to help government-related companies hit by the global recession, and yesterday announced it had set up an independent agency to manage the funds. Dubai's Department of Finance said Sheikh Mohammed bin Rashid, the Vice President of the UAE and Ruler of Dubai, had issued a decree establishing the Dubai Financial Support Fund to administer the proceeds of Dubai's $20bn bond programme. "The Dubai Financial Support Fund will be responsible for managing the proceeds of the Dubai Government's $20bn bond programme and will provide loans on a commercial basis to Government and government-related entities (GREs) engaged in projects deemed to be of strategic and developmental importance to the emirate of Dubai," said Abdul Rahman al Saleh, the Department of Finance's director general. It was Mr al Saleh's first significant public announcement since taking over after the removal of the former department head, Nasser al Shaikh, in May. Without significant oil revenues to fall back on, Dubai has been hit harder than most Gulf cities by the global crisis. Lack of global credit and falling property prices have pummelled its heavily indebted property and construction sector. With a collapse in global trade depriving the emirate of another key source of income, Dubai's Government and the companies it controls are struggling to service at least $80bn in debt. As foreign banks are reluctant to refinance that debt, Dubai announced the bond programme in February and sold the first $10bn to the Central Bank. It has already lent slightly more than half of that to government-controlled firms to help them pay contractors and creditors. A senior finance department official, speaking on the condition that he not be named, confirmed yesterday the department was preparing to sell the second tranche, but would not say when or to which investors. The creation of the financial support fund marks a significant step forward in Dubai's recovery, analysts and bankers said. The announcement lacked sufficient new detail to impress investors, who sent the Dubai Financial Market General Index down 0.6 per cent. Analysts said investors would need to see details on who would run the fund, how it would lend to which companies and what they would be allowed to use the money for. "This is the first explicit announcement from Dubai Government about how they are managing funds but they didn't say which of the GREs are getting what amount," said Ali Khan, the managing director at Arqaam Capital in Dubai. "It's good news for Dubai and its economy, but the headline is already priced in." The fund appears to be the result of advice from the 200-year-old bank Rothschild, which Dubai hired to advise on which companies should receive the funds and on what terms. The new fund will report to Dubai's Supreme Fiscal Committee, which is led by Sheikh Ahmed bin Saeed and includes Mr al Saleh and Mohammed al Shaibani, the chief executive of the Investment Corporation of Dubai. The fund will handle all aspects of administering and managing the funds; collecting and reinvesting the money already lent out; deciding who receives the remainder of the first $10bn; and managing the sale and disbursal of the second $10bn, according to the announcement. The fund will also have the authority to borrow additional funds on Dubai's behalf, and even buy stakes in companies or projects it considers of strategic importance to the emirate. Analysts said the fund would probably boost confidence that Dubai's turnaround was being professionally managed. "This eliminates any suggestion that companies can run to the Government depending on how close they are," said Suresh Kumar, the chief group director at Emirates NBD in Dubai. But they said the announcement left too many important questions unanswered. "What they need to do is to target the question of whether there is enough money to repay the debt," said Farouk Soussa, the head of Middle East government ratings at Standard & Poor's in Dubai. One of the fund's first major hurdles will be how to ensure that Nakheel, one of the country's two largest property developers, is able to repay a $3.5bn Islamic bond due in December. [e-mail] With additional reporting by Sarmad Khan