Mohammed sets up support fund

The Dubai Financial Support Fund was established yesterday through a decree by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

The fund will be responsible for managing the proceeds of the Dubai Government's $20 billion bond programme and will provide loans on a commercial basis to the government and government-related enterprises (GREs).

The GREs that wish to benefit from the loans extended by the support fund "will have to provide security" for such loans, a spokesperson of Dubai's Depart-ment of Finance (DoF) told Emirates Business.

The support fund is an independent legal entity established with the specific purpose of providing financial support and liquidity to government and GREs undertaking projects of strategic importance within Dubai that contribute towards the overall economic development of the emirate.

Abdulrahman Al Saleh, Director-General of Dubai's Department of Finance, which is supporting the establishment of the fund, said: "Each application for support will be assessed against pre-determined criteria to ensure the funds are allocated efficiently and in accordance with Dubai's long-term growth strategy.

"The fund will be working with the GREs and supporting them, but it will be on a commercial basis so that it's challenging for them to meet their obligations and to be able to manage their requirements in the long term."

The DoF spokesperson declined to specify the details of the pre-determined criteria, maintaining that the fund's board would make its recommendations to Dubai's Supreme Fiscal Committee (SFC), to whom the fund is accountable.

While there are no immediate plans to raise additional capital over the announced $20bn bond programme, half of which has been subscribed to by the UAE's Central Bank, the new entity is "legally entitled to raise more money in the future" should such a need arise, the spokesperson told this paper.

The fund is authorised to invest in, hold, manage and issue debt instruments, including bonds and sukuk, 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.

It is also entitled to collect loan repayments and may also re-invest these revenues. It can also acquire partial or whole stakes in institutions deemed to be in line with its own strategic objectives.

Entities that have already received funds from the first tranche from the government will have their loans transferred to the support fund. However, the spokesperson reiterated that to be entitled for further funds, the GREs would have to prove that their projects are strategic in nature and crucial for sustaining the emirate's long-term economic goals.

"No, it isn't a bailout," Al Saleh said in a video interview. "It is only to support them [the GREs] in meeting immediate obligations at the moment.

"And the support is in the form of commercial loans, which will be met by them in due course as market conditions improve."

Some of Dubai's GREs have in the recent past seen their ratings revised downward owing to a reappraisal of the likelihood of extraordinary financial support by the Government of Dubai to ensure the timely repayment of their financial obligations. The formation of the fund is being seen by industry observers as a step to reiterate government support to the GREs.

"The support fund is a step in the right direction, as it underlines the government's determination to provide financial support to its government-related issuers, where needed," said Philipp L Lotter, Senior Vice-President, Moody's Middle East, a rating agency.

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