Dubai support fund clarified

A new law in Dubai brings more clarity to the roles and responsibilities of the Dubai Financial Support Fund, formed in 2009 to give aid to strategic companies in the emirate.

Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, has issued a law clarifying the scope of the US$20 billion (Dh73.46bn) Dubai Financial Support Fund.

The law, announced yesterday, says the fund "may grant loans and credit facilities to government and non-government entities". It amended the 2009 law that established the support fund, known as the DFSF.

"The new rules also allow the support fund to issue bonds and other financial instruments on behalf of the Government of Dubai to provide liquidity for strategic projects of entities applying for funds," the announcement said. "The fund is also authorised to invest in commercial projects, establish investment funds and manage institutions and corporations to achieve its objectives."

Sources close to the Government said the change was made to reinforce that Dubai was ready to aid any company deemed to be strategic - not just those under the direct ownership of the Government. The move brought more clarity to the fund's scope and confirmed what it could do, one source said.

The changes come as investors show "a lot more willingness" to buy Dubai's government debt, said Mark Watts, the head of fixed income at the National Bank of Abu Dhabi. Dubai last sold debt in September, when it issued $1.25bn under an existing bond programme.

"As far as I'm concerned, there's quite a strong appetite out there for Dubai paper," Mr Watts said. "Lots of people perceive that the events in the region have made the UAE and Dubai a lot more attractive to them as investors."

After making the amendment, Sheikh Mohammed issued a further directive "expanding the obligations" of companies that apply for support from the fund. They now must "submit financial assurances and comply with strict procedures when applying for financial relief".

The amendment went into effect from March 17, the announcement said.

The DFSF was formed to manage financing from the Central Bank, the Abu Dhabi Government and a pair of Abu Dhabi Government-owned banks. Abu Dhabi extended the assistance to Dubai during the worst of the global financial crisis.

Abdulrahman al Saleh, the director general of Dubai's Department of Finance, said two years ago when the DFSF was established it would "provide loans and credit facilities on a commercial basis to government and non-government entities executing strategic and developmental projects in the emirate of Dubai".

He also said then that it would have the power to issue bonds and other instruments, invest in commercial projects, establish investment funds and manage companies. "It may also acquire whole relevant commercial firms or part of their stakes or shares," he said.

With the help of the fund, Dubai has since overseen a $24.9bn debt restructuring at Dubai World, its biggest government-owned conglomerate. Dubai Holding, a business group owned by Sheikh Mohammed, is also restructuring some of its divisions.

Nakheel, which is owned by Dubai World and is the emirate's biggest developer, used DFSF financing to help repay a pair of Islamic bonds in 2009 and last year. Money from the DFSF has flowed into a number of other government-owned and government-linked companies to support their operations.