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Dubai Sets Up $20b Support Fund

DUBAI - The Dubai government launched a bailout fund on Wednesday to manage and distribute the proceeds of a $20 billion sovereign bond programme intended to help cash-strapped companies in the emirate.

The “Dubai Financial Support Fund” will provide loans to government and non-government entities “engaged in projects of strategic and developmental importance to Dubai,” said Abdulrahman Al Saleh, Director General of Dubai’s Department of Finance.

“Each application for support will be assessed against predetermined criteria to ensure the funds are allocated efficiently and in accordance with Dubai’s long-term growth strategy,” the finance head said in a statement.

Analysts said that the government’s move to bail out companies facing severe liquidity problems and heavy debts was expected and would prove critical to the survival of these businesses, most of them in the property sector. The total debt of Dubai’s government-owned and government-related entities was officially estimated at $80 billion in December 2008. The Reuters news agency quoted Al Saleh as saying on Wednesday that the debt was manageable in the long term.

‘’As an independent legal agency, the Fund aims to offer financial support and cash liquidity to qualified government and non-government bodies... ,’’ Al Saleh added. It was not immediately clear whether the Fund’s establishment would expedite — or complicate — the disbursal of emergency funding to companies most in need of help.

Vice-President and Prime Minister of the UAE His Highness Shaikh Mohammed bin Rashid Al Maktoum, in his capacity as Ruler of Dubai, ordered the creation of the Fund, which will be accountable to Dubai’s Supreme Fiscal Committee, or SFC.

The SFC, chaired by Shaikh Ahmed bin Saeed Al Maktoum, was established in October 2007 and has overall responsibility for overseeing Dubai’s fiscal policies. The SFC will review and approve the loan criteria needed to grant financial support from the Fund. It will also appraise applications recommended by the Fund’s board and determine the size and terms of each loan and the nature of related securities and guarantees.

Financing would only be extended according to criteria set by the Fund’s supervisor — the Dubai Higher Committee for Fiscal Policy. The Fund would not reveal the names of companies it supports, Al Saleh said.

The Fund will be financed from resources earmarked from the first $10 billion tranche of bond programme, which was launched early this year, in addition to proceeds of loans, investment of its assets and funds, issues of bonds and sukuk and government support.

Loans extended under the first tranche of the bond programme will have their ownership converted to the Fund.

The first tranche of Dubai’s $20 billion sovereign bond programme, announced in February, was subscribed fully by the UAE Central Bank. Issuance of the second $10 billion tranche is underway and will be open to local and foreign banks. However, Central Bank Governor Sultan Nasser Al Suweidi said last week that the central bank would buy into the second tranche and would engage in trading those bonds.

The Fund’s fiscal year starts on 1^st January and ends on 31^st December. A board of directors will run the fund, devise the general policies of the fund and its affiliated companies. 


issacjohn@khaleejtimes.com