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Wed 22 Jul 2009 10:02 AM

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Dubai gov't to launch $20bn support fund

Fund will provide support and liquidity to government and government-related firms.

The Dubai government is to launch a $20bn support fund to manage the proceeds of the $20bn bond programme launched earlier this year.

The fund 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, the director general of Dubai’s Department of Finance, Abdulrahman Al Saleh, said.

It will be accountable to Dubai’s Supreme Fiscal Committee (SFC).

Asked if the government would offer support to state-owned real estate giant Nakheel, he said: “In principle we don't disclose how and when we support the GREs, but we are working very closely with all of them, and during this time all of them are subject to a defined process of getting the support and it is presented to the Supreme Fiscal Committee to make the final recommendations and allocate support.

“It is all based on very important criteria that must be met and the important issue is that it's strategic and it has a significant impact on the economy to get the support.”

He denied that the fund’s support constituted a bailout of companies that have borrowed too much in the in the past.

“No, it isn't a bailout,” he said.

“The GREs have a very solid strategic position in the long term, in the sense that they have very variable and strategic projects. Also they have revenue generating that's helping them in continuing their operations.”

At the moment, the government would only support them in meeting immediate obligations, he added.

“And the support is in the form of commercial loans which will be met by them in due course as the market conditions improve. So it is not a bailout.”

A spokesman for Dubai’s Department of Finance told Arabian Business on Wednesday that that it was currently raising the second tranche of the $20bn bond programme announced in February to help companies in the emirate stave off the effects of the global crisis.

The UAE Central Bank has already bought $10bn of bonds from the Dubai government, which a number of government and quasi-government entities have confirmed they are receiving capital from.

The support fund will be able to issue financial instruments, including bonds and sukuks, inside and outside the emirate on behalf of the Government of Dubai, invest in commercial projects, establish investment funds and manage institutions and corporates in order to provide liquidity for strategic projects of entities applying for funds.

The fund can also acquire partial or whole stakes in institutions and companies that are deemed to be “in line with the overall strategic objectives of establishing it”.

Al Saleh also said that the Dubai Metro is on track to begin operations on September 9.

Arabian Business: why we're going behind a paywall