Dubai companies should begin receiving funds "in a matter of a week or two" from the US$10 billion (Dh36.73bn) the Dubai Government recently borrowed from the Central Bank to help ease a cash pinch in the emirate, Nasser al Shaikh, the head of Dubai's finance department, said at a conference today.
The funds are part of a $20bn bond programme launched last month to help Dubai meet its short-term funding requirements. The move has calmed investors, who feared that companies may face difficulties repaying debts this year, given the reluctance of banks to refinance loans because of a global credit shortage. So far, the Central Bank has subscribed to $10bn of the bonds, effectively injecting the money into the Dubai Government. "These funds will be used to assist companies to refinance their current obligations maturing this year and the next," Mr al Shaikh said.
The emirate will decide how to administer the funds on a case-by-case basis, he said, adding the money could be lent to the companies directly or used to guarantee loans provided through local banks. While Mr al Shaikh said companies in Dubai's property sector would receive special priority, companies outside of the property sector would also be eligible. Shady Shaher, an economist at Standard Chartered, said he still expected the majority of the money to go into property companies, especially those partially owned by the Dubai Government. "Since the majority of real estate companies have government ownership, they would naturally get more support," he said.
A crucial decision will be what amount of money is allocated to paying down the companies' debts and how much is needed to simply boost the cash they need to continue paying workers and contractors. Several large Dubai-based entities have already applied for funds, Mr al Shaikh said. "We will assess their needs," he said. "We clearly understand that the cash flow of some companies have been affected by the global crisis that has affected the real estate sector, so there might be a need to help some of the companies when it comes to their working capital."
Eckart Woertz, an economist at Gulf Research Center, said the balance could determine how much of the money spurred economic growth. "The main question is, how much do you need for refinancing and how much will be directly injected in cash, which is what would really help the economic activity. But I guess they do not know the answer themselves, because it depends on how things develop over the course of the year and how easy or difficult it will be to get refinancing."
One of the largest debts coming due this year is a $2.2bn loan taken out by the Dubai Electricity and Water Authority (DEWA), which matures next month. Mr al Shaikh said his feedback so far suggested the government utility was "pretty comfortable right now" and that it was able to meet its debt obligations without government help. Dubai Airports also faces a $1bn debt coming due next month, he said. The Department of Finance is helping the entity negotiate with local banks about how to meet the requirement. "So far it looks very positive," he said. Dubai Airport could not be reached for comment today. The Dubai Government will also set up a special fund through the Department of Economic Development to lend a portion of the $10bn to small and medium-sized companies who need cash. Talking about the Dubai property market, Mr al Shaikh said the finance department would continue to "try to come up with measures to stimulate the sector" and that if this failed to succeed it would "come up with another measure". In the current environment there is "more focus on dispute resolution between buyers and sellers", he added. With regards to the ongoing discussions between the UAE's two largest mortgage companies, Tamweel and Amlak, Mr al Shaikh, who also serves as the chairman of Amlak, said the management from both companies were "talking with the ministerial committee". Although initial announcements last year said the two companies would merge, statements from Government officials earlier this week said other possible options were under consideration. Mr al Shaikh said more companies would follow suit and merge during the slowdown. "I think we will see more consolidation in various sectors, which could include real estate, but any potential merger has to make sense to shareholders and to the economy at large." Asked whether any possible mergers could bridge Abu Dhabi and Dubai companies, he added that "in these circumstances, nobody can rule anything out". firstname.lastname@example.org email@example.com