Emirates to boost investor confidence

original source Associated Press

CAIRO, Egypt —
The United Arab Emirates moved Monday to allay concerns about Dubai's battered property market and the city-state's debt-load, with a top official pledging government backing for state-run companies shouldering the brunt of the obligations and indicating that more mergers in the lending sector could come.

Emaar Properties chairman Mohammed Ali Alabbar's comments followed an announcement that Amlak Finance and Tamweel _ the UAE's two biggest mortgage lenders _ would be merged into a little-known government entity called the Real Estate Bank. In turn, REB would merge with another bank into which the government would pump funds.

In tandem, the moves were perhaps the strongest indications yet that booming Dubai, which has staked its fortunes on becoming a global tourism and financial powerhouse, may be on course for a bailout by the federal government in Abu Dhabi.

Fueling the fears are collapsing oil prices and a crisis that has given global equity markets a drubbing. In its latest step to temper the crisis, the U.S. government on Monday bailed out banking giant Citigroup.

Alabbar, a top adviser to the emirate's ruler and also the chair of an advisory council set up to help Dubai maneuver through the financial crisis, said the emirate's sovereign debt obligation is $10 billion and that government-run companies are shouldering an estimated $70 billion of debt. Total assets are valued at $260 billion.

"The government can and will meet all its obligations going forward," Alabbar told participants at a conference in Dubai. "Let there be no doubt about this fact."

Alabbar said that the government would step in to support affiliated companies as needed, and that the Central Bank will continue to take action "whenever necessary."

"That said, we are rationalizing our expenditures and consolidating our activities," he said. A copy of his speech was emailed to The Associated Press by the UAE government.

Dubai's debt-load has been the source of tremendous concerns in the region, even as the government _ in steps mirrored by other oil-rich Gulf Arab states _ has injected funds to boost liquidity in the current economic climate.

The figure was slightly higher than earlier estimates by analysts.

The economic downturn has left investors increasingly skittish about the property market in Dubai, which is known for multibillion dollar projects that have turned its skyline into one of towering skyscrapers with archipelagoes of man-made islands just offshore.

The Dubai Financial Market is off almost 70 percent this year, with property developers sustaining hard hits. Real estate values, which have surged for years, are slumping, and some developers are either eyeing or enacting hiring freezes, layoffs or other steps to deal with the tougher economic times.

Alabbar had said earlier this month that Dubai had enough resources to cover its own debt load _ which outstrips the emirate's gross domestic product _ for the next seven quarters.

The head of an investment company owned by Dubai's ruler, meanwhile, recently told regional business leaders that he believed the emirate's debt load was manageable, noting that as a ratio to gross domestic product it is far lower than that of Western countries.

Analysts have argued the country, as a whole, is well poised to withstand the current global crisis because of its oil-fed cash surplus. The economic downturn may actually prove to be a blessing, helping to cool unsustainable growth rates, according to many economists in the region.

Still, speculation has mounted that the UAE's federal government, based in oil-rich Abu Dhabi, may need to bail out its resource-poor neighbor _ one of seven semiautonomous emirates making up the UAE.

UAE officials announced on Monday that the Real Estate Bank, under which Tamweel and Amlak would be merged, would itself merge with the Emirates Industrial Bank. Together, they would be called the Emirates Development Bank, analysts said.

"This is probably the first example of the federalization of the Dubai issue," said Zahed Chowdhury, head of research at Deutsche Bank in Dubai, adding that the merger was probably the easiest one to begin with because the new entity's future mandate was to finance properties both in Dubai and Abu Dhabi.

That would make it more palatable for Abu Dhabi, which would have to foot the bill for funding the Emirates Development Bank. Officials did not say how much money would be pumped into EDB.

Neither REB nor EIB "were up to very much during their lifetimes," said Chowdhury. "It's a two birds with one stone kind of situation."

A recent report by HSBC Holdings PLC found home prices on Dubai's secondary market had fallen by 4 percent from September to October _ the first decline since the city-state began allowing foreigners to buy property in 2002. The next report is expected to show a further slide.

On Dubai's bourse, even the follow-up step on the Tamweel-Amlak merger failed to boost investor sentiment. Trading was halted Sunday in shares of the two companies, which have seen stock value plummet about 80 percent this year.

The Dubai exchange was down 5.3 percent on Monday.

Emaar's Alabbar said that the Dubai Advisory Council, which he heads, is aggressively managing the current and future supply of new development projects on the market.

"Let me assure you that we have our finger on the pulse of the real estate sector," he said.