Dubai Spending $10 Billion Fund, Sees Economy Stable

source Bloomberg

April 9 (Bloomberg) -- Dubai has begun disbursing a $10 billion fund it raised to battle the impact of the global credit crisis and its economy is past the worst of the danger, the Persian Gulf emirate’s top finance official said.

“We are talking about big sums here,” Nasser Bin Hassan al-Shaikh, director general of the Department of Finance, said in an interview late yesterday. “The bad days are over” for the economy, which is stabilizing and will gradually recover.

Economic growth in Dubai, the second-biggest of seven states that make up the United Arab Emirates, slumped after the worst financial crisis since the 1930s hurt its property, financial services and tourism industries. The emirate’s economy may contract between 2 percent and 4 percent this year, Standard & Poor’s Ratings Services said in a report March 17.

The economy still expanded in the first quarter, al-Shaikh said. In February, Dubai sold $10 billion of five-year bonds to the U.A.E. central bank, part of a $20 billion medium-term note program, to help state-affiliated companies struggling to raise cash. That money will be used to meet payment shortfalls and repay loans, the government said Feb. 25.

“Most of the support will be offered to the property” companies since they are the pillars of Dubai’s economy, al- Shaikh said. The Department of Finance will announce an overall figure for funds paid out and approved for disbursal “very soon” but not the companies that have received help, he added.

Adviser Appointed

Earlier this month, Dubai hired investment bank N.M. Rothschild & Sons Ltd. to help construct the support fund.

Dubai’s economy is “beginning to stabilize and with further policy measures to restart credit growth, I expect the economy to start recovering in the second half of the year,” Marios Maratheftis, regional head of Gulf research at Standard Chartered Plc, said in a statement today. Maratheftis forecast Dubai’s economy would expand by 0.5 percent this year.

Real-estate prices in Dubai may decline a further 20 percent after falling 34 percent from their peak last year, EFG- Hermes Holding SAE, Egypt’s biggest publicly traded investment bank, said March 29. The drop follows a five-year boom when prices quadrupled, helped by new laws allowing foreigners to own property and a growing expatriate workforce. Falling property prices increased the risk of defaults on home loans.

The government will “encourage consolidation” of Dubai’s real-estate companies, but will not force them to combine.

Property companies

Emaar Properties PJSC, which is building the world’s tallest tower in Dubai, Nakheel PJSC, which is developing palm tree-shaped islands off Dubai’s coast, Dubai Properties LLC, Tatweer Dubai LLC and Sama Dubai LLC, are some the state-backed developers that led Dubai’s construction drive.

The U.A.E. and five other Gulf Arab states enjoyed an economic boom as oil prices surged and governments invested in real estate and industrial projects to diversify their economies. The six Gulf countries, including Saudi Arabia, Qatar and Kuwait, pump almost a quarter of the world’s crude oil.

Dubai and its state-owned companies borrowed $80 billion to fund the emirate’s transformation into a regional financial and tourist hub. They need to repay $10 billion of loans in the remainder of this year, Standard & Poor’s said March 17.

Abu Dhabi, Dubai’s neighbor and the U.A.E.’s capital, invested a combined 16 billion dirhams ($4.4 billion) in the emirate’s five banks in February to buffer losses.

Al-Shaikh said Dubai’s Department of Economic Development is preparing a separate plan to support the emirate’s small and medium-size companies, which may include setting up a fund.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net