From the Fin Times 29 March '09
Dubai will this week outline borrowing terms to government-related companies in need of assistance as it seeks to inject much of its $10bn borrowing into the domestic economy to help lift the emirate from its economic malaise.
The government is about to appoint a financial adviser to hammer out loan terms for companieswanting credit lines from the $10bn loaned in February by the United Arab Emirates central bank to the city-state, which is suffering in the global crisis.
The first half of a $20bn government bond programme aims to help the emirate's corporate giants pay off roughly $75bn (€56.4bn, £52.4bn) debt and meet commitments, especially in the troubled real estate sector, where some state developers have failed to pay large invoices for the past nine months.
The slowdown has affected finance, trade and tourism in the region's commercial hub, now also threatened by an expatriate exodus. EFG-Hermes forecasts 17 per cent of the population could leave by the year's end.
The government is positive about refinancing its obligations over the next month and says it wants the cash to act as a stimulus to help revive economic activity. "We want [most] of the money to feed back here," said Nasser al-Shaikh, director-general of the department of finance. "They will have international obligations but we would like to see most injected into the local economy."
The Supreme Fiscal Committee, which includes Mr Shaikh, was set up a few years ago to co-ordinate the emirate's debt position. It is now in talks with "several companies" over disbursing the aid.
The committee will not necessarily publicly identify those companies that will draw down from the facility, though it will reveal how much cash it has injected. The five-man body will also leave the companies to manage themselves but will make sure they are in a position to repay the loan.
Beyond the state-linked giants to be targeted by the $10bn package, the department of economic development will also unveil a stimulus package for small and medium sized enterprises.
But the government will likely keep some of the $10bn in reserve for perhaps the biggest refinancing challenge of the year, Nakheel's $3.5bn Islamic bond, which matures in early December.
Analysts expect the offshore developer, or sister companies within the government's Dubai World stable, to be one of the first to tap the facility.
Dubai announced that it would accept federal support in February after the refinancing of a $3.4bn loan for Borse Dubai, the government exchanges group, ran into trouble, forcing the government to intervene.
If needed, Dubai will tap the second $10bn tranche, which has already been underwritten by the federal government, but that will depend on how much debt can be refinanced and the size of the cash calls made by government-linked companies.
The next two refinancing challenges are upcoming maturities on the state utilities company's $2.2bn Islamic loan and $1bn for the civil aviation authority, but officials say talks are going well for what are essentially stable, cash-generative businesses.
Still, some bankers expect the second tranche of $10bn to be drawn as early as May or June.