DUBAI - Dubai’s government said Wednesday it is creating a “Financial Support Fund” charged with managing and distributing $20 billion worth of state funds to cash-strapped companies in the emirate.
In a statement announcing the fund, Finance Department Director General Abdulrahman Al-Saleh said the payouts will be provided to government-linked companies as loans based on their projects’ “strategic and developmental importance” to the city-state.
“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 chief said.
Once-booming Dubai and its vast web of state-sponsored companies are deep in debt and struggling because of the global downturn. The government has said it and its related companies owe some $80 billion, although a precise breakdown of the debt pile has not been made public.
The Dubai government announced the $20 billion loan program in February. It has previously provided little detail about how the funds are being distributed.
So far, $10 billion in loans have been provided by the federal United Arab Emirates central bank, based in the neighboring capital Abu Dhabi.
The Support Fund’s Board will be responsible for establishing general policy for the Fund and its subsidiaries and defining its projects and programs, obtaining loans and financing, establishing institutions, companies, commercial projects and subsidiaries and buying and selling assets and equities. It will also be responsible for recommending criteria for applicants requesting loans and proposing suitable applicants in the form of strategic projects or companies and recommending them to SFC. The criteria depend on the strategic importance of the projects and applicant entities and their role in sustaining the Emirate’s economy on the long term.
It will also adopt financial, administrative and technical regulations and submit them to the SFC for approval.
The SFC 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 the financial support to government entities, strategic projects and GRE’s in the Emirate. It will also appraise applications recommended by the Fund’s Board, and determine the size and terms of each loan and the nature of the related securities and guarantees.
The SFC is chaired by Sheikh Ahmed bin Saeed Al Maktoum.
It is not known when the second $10 billion of financing will be issued and whether the federal government also plans to back that round, as analysts expect. The announcement said the recipients of the emergency financing will not be named.
However, some funds have already been pumped into the property developer Nakheel, which made its name by building palm-shaped islands off the emirate’s Persian Gulf coast.
The state-owned developer acknowledged in May that it had received a share of the funds, but did not say how much.
The cash injection has given Nakheel only some breathing room, however.
The company has slashed jobs and shelved billions of dollars’ worth of high-profile projects, such as a building slated to be the world’s tallest and a Trump hotel on its signature Palm Jumeirah island. Its and other developers’ financial problems have rippled out to the numerous international contractors in Dubai, which have in turn been forced to lay off workers of their own. Nakheel must still find a way to pay back $3.5 billion in loans this year alone.
Dubai’s new support fund was created by decree from the emirate’s ruler, Sheik Mohammed bin Rashid Al Maktoum.
Besides managing existing and new loans, it will have the power to issue bonds locally and internationally, invest in commercial projects, and acquire partial or overall stakes in companies.