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Wed 25 Feb 2009 01:39 PM

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Bonds boost will pay off real estate debts - gov't official

UPDATE 1: Property companies will be main beneficiaries of first $10bn from bond scheme.

Dubai's government said on Wednesday that $10bn in bond proceeds from the UAE Central Bank would be enough to help the emirate's companies pay off debts and restructure, to deal with a real estate slump.

The Gulf Arab trade and tourism hub is ready to issue a second $10bn tranche when needed, and was considering launching a stimulus package for small and medium enterprises, the director general of Dubai's Department of Finance said.

Real estate companies in Dubai, where the property sector has crashed after a six-year boom, would be among the main beneficiaries of state aid, Nasser Al Shaikh said, declining to say how much debt Dubai firms would repay in 2009.

"We understand that some entities might face difficulties in refinancing because of the global credit crisis. The times are challenging throughout the world. Now it is up to us," he told a media briefing in Dubai.

"By protecting the major players in our economy, automatically we are protecting our economy," he added.

Dubai's decision this week to sell $10bn in bonds to the UAE Central Bank alleviated worries it could default after concerns had driven the price of insuring the debt of some Dubai firms to levels exceeding those of crisis-hit Iceland.

Dubai needed access to funds to refinance $15-20bn debt this year in the wake of the economic dowturn.

The market has been waiting for more details on how the money would be used.

Al Shaikh said that the money would be distributed through a Support Fund to firms needing to refinance or repay their debts and meet other commitments.

The support would come in the form of lending at a price at least equal to the four percent Dubai's government is paying on the bonds, and be repaid once the financial climate improves.

The exact mechanism was still being worked out but the cash could either be lent directly to firms or through banks, he said.

Any decision to recapitalise Dubai's banks, as Abu Dhabi did earlier this month, would have to be taken by state-owned Investment Corp. of Dubai, Shaikh added.

Al Shaikh declined to say when Dubai might issue the second $10 bn tranche, but another Dubai official told state-owned Dubai TV on Tuesday that the former Gulf Arab boomtown would not need the funds for two or three years.

"The government of Dubai sees no need now to offer the second issue of $10bn and will stick to this issue to cover any future needs that come up over a period of two to three years," said Omar bin Sulaiman, a member of Dubai's crisis panel and deputy chairman of the UAE central bank.

Dubai still intends to seek a sovereign credit rating in the second half of 2009, Al Shaikh said, and had received great interest in the second $10 billion tranche of the programme.

Analysts had said that the four percent interest on Dubai's five-year bonds was too low to attract significant interest from private investors on the open market and would probably be bought up the central bank or another federal entity.

Al Shaikh said the bond programme was not backed by assets but secured by Dubai's government (Reuters)

Arabian Business: why we're going behind a paywall

Juergen 11 years ago

For what purpose the $20 billion Dubai Government Bond will be used? Isn't it to finance current and future projects like roads, bridges, power and sewage plants? Isn't it to cover the cost of governmental companies like DEWA, RTA aso.? This will for sure effect all private companies involved in these projects but has little to do with the problems of the real estate sector.