Second tranche of Dubai $20bn bond this year

Dubai has already distributed more than half of the funds from its $10bn bond and will be issuing the second $10bn tranche within this year, a top government official told DubaiEye Radio, which is operated by Arabian Radio Network, an Emirates Business sister company.

Nasser Al Shaikh, Director General of Dubai's Department of Finance, said the $10bn bond, fully subscribed by the UAE Central Bank in February, has been loaned to several quasi-government companies at a marginal interest rate.

"All the support that we extend to is in the form of loans, the tenor of which is a bit shorter than our commitment to the central bank to ensure that we have the money paid to us before we repay it to the central bank. The interest rate is four-plus per cent, which is just a margin addition to cover our administrative costs," Al Shaikh said.

Dubai's five-year loan from the central bank has an interest of four per cent and puts no restrictions on how the government of Dubai would spend it.

He declined to name the beneficiaries but indicated that state-affiliated real estate companies were able to draw some money from the funds.

There were some reports that a number of government-related property firms have been defaulting payments due to the lack of liquidity and the drop in demand. Al Shaikh said due to the cash-injection, "all the state-linked real estate developers have already started paying their bills".

"It took a number of companies to absorb the new economic realities – their cash flows were affected – and that had an automatic impact on meeting their obligations," he said. "When it comes to paying contractors, we are monitoring this activity and I know for a fact that it has been improving quite a lot."

He said they would not wait for the first $10bn to be fully exhausted before launching the second tranche. The timing of the launch, he said, depends on the requirements of "more than 10" quasi-government companies.

He added that they are looking at various options "within and beyond the country". "After issuing the first tranche, we had very good interest from other parties beyond the boundaries of the UAE," he added.

"We will issue it I think within this year but the timeline is difficult to define because it depends on their requirements of the companies," Al Shaikh told Emirates Business. "If you look at Dewa, it has refinanced $2.2bn fully without the need of our support. Dubai Civil Aviation (DCA) had a $1bn maturity earlier and we repaid $365m and refinanced $635m. So it's difficult to say how much companies would need, we have to take it as we go along."

He said the department had appointed Rothschild to advise the government on the creation of a financial support fund because they lack the expertise to do that.

"We, the Department of Finance, are not a bank," he added. "We have not been doing this before, we do not claim to know or to have the knowledge of managing such a support fund that is why we need advise of a third party."

Al Shaikh has also denied that certain entities have been earmarked a portion of the funds prior the conversation with the central bank.

"A number of our sectors are being regulated by the federal government like the banking industry. One of the areas to suffer from the crisis was the banking industry, that's why we had a dialogue since September or October but we never really discussed the bond programme as we did not see the need for it," he said.

He said the department over the past six months has been having a "healthy dialogue" with some of the key quasi-government players.

"These are companies who have been operating within Dubai and have strategic importance to Dubai," he said.

"As government, the crisis really had no great impact on the government revenues and expenditure. However as a result with those dialogue, we thought that they would face some challenges and they would need some (cash) for their maturity, which is coming due in 2009 and 2010."

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.