“We are moving forward in that, and in January 2010 we will start implementing the solution,” he told reporters on the sidelines of a conference in Dubai.

Dubai-based Amlak and Tamweel, whose shares were suspended in November, could form a new Islamic bank, Al Mansouri had told Dubai Television last month. He said Amlak and Tamweel’s investors may own a third of the new bank, while the governments of UAE and the emirate of Dubai may share the remaining stake equally.

Amlak and Tamweel, both of which comply with Islamic banking rules, were the country’s two biggest mortgage lenders before the seizure of global credit markets blocked their access to new funding. Amlak reported a loss of Dh65.6 million in the second-quarter to June, while Tamweel reported a loss of Dh35 million in the same period.

Tamweel Chairman, Shaikh Khalid Bin Zayed Al Nahyan, said earlier this year that the Federal Government will provide only the initial funding for the two companies and  that they will have to rely on the market later. “Amlak and Tamweel must have the option to collect retail deposits. Otherwise it will end up at the same problem that created it in the first place,” he had said.

Amlak and Tamweel both accept wholesale deposits from companies and have applied to the Central Bank for a retail banking licence. The final proposal for a merger, which has initial approvals from the government, will be put to investors for a vote.

Al Mansouri also said that Dubai’s plans to sell $10 billion of bonds for its government support fund will “depend on its needs at the time.”

Dubai is likely to complete raising a second $10 billion by the end of November, said analysts who expect the companies needing assistance to include Nakheel.

“Eurobond is the best” option for the offering, Al Manouri told reporters, adding that the emirate would only sell the debt if needed. He said issuing bonds was a good option considering the strength of the overall economy. “Look at this country and what it has provided to the people in terms of its economy, the strength of its economy and our reserves,” he said.

The UAE’s central bank in February bought $10 billion of the bonds that Dubai issued to support state businesses struggling to raise cash because of the credit crunch. Dubai and its state-related companies borrowed $80 billion to transform the emirate into a financial services and tourist hub.

Leading banks such as UAE’s Mashreqbank and HSBC have made public their interest in Dubai’s planned debt issue. Dubai last month successfully placed nearly $2 billion in new five-year Islamic bonds, the biggest sukuk sale from the Gulf region this year. It received a hearty response, reflecting renewed investor confidence in the emirate and lifting doubts about its ability to meet its debt obligations.

Al Mansouri had said on Monday that economic growth in the UAE wouldprobably slow to 1.3 per cent this year, dragged down by the global financial crisis. The economy expanded by  7.4 per cent last year. Inflation will probably ease to around 2.5 per cent from about 12 per cent the previous year, he had said. 

 martin@khaleejtimes.com