Dubai's government said Wednesday it is creating a "financial support fund" charged with managing and distributing $20 billion worth of state funds to cash-strapped companies in the emirate.
The move, issued in a decree by Dubai's ruler announced Wednesday, establishes a framework for distributing funds aimed at keeping the once-booming Middle East business hub's economy from slipping further off track. The city-state is home to hundreds of thousands of foreign workers and is the Middle East headquarters for many of the world's biggest companies.
Finance Department Director General Abdulrahman al-Saleh said the payouts will be provided to government-linked companies as loans based on their projects' "strategic and developmental importance" to the city-state.
"Each application for support will be assessed against predetermined criteria to ensure the funds are allocated efficiently and in accordance with Dubai's long-term growth strategy," the finance chief said in a statement announcing the fund.
Dubai and its vast web of state-sponsored companies are deep in debt and struggling because of the global downturn. The government has said it and its related companies owe some $80 billion, although a precise breakdown of the debt pile has not been made public.
The Dubai government announced the $20 billion loan program in February. It has previously provided little detail about how the funds are being distributed.
So far, half of the loan package — $10 billion — has been provided by the federal United Arab Emirates central bank, based in the neighboring capital Abu Dhabi. That move was seen by many observers as a federal bailout of the best known of the UAE's seven semiautonomous sheikdoms — a characterization Dubai's government rejects. The second round of $10 billion has not been issued yet.
Analysts welcomed Wednesday's move as a sign Dubai remains committed to backing some of its debt-saddled companies. But they said more needs to be done.
"It does not address some of the crucial questions that we ... have regarding the criteria of financial support, as well as which companies are regarded as strategic, and which are not," said Philipp Lotter, senior vice president at credit rating agency Moody's Middle East in Dubai.
It is not known when the second $10 billion of financing will be issued and whether the federal government also plans to back that round, as analysts expect.
Wednesday's announcement said the recipients of the emergency financing will not be named.
However, some funds have already been pumped into the property developer Nakheel, which made its name by building palm-shaped islands off the emirate's Persian Gulf coast. The state-owned developer acknowledged in May that it had received a share of the funds, but did not say how much.
The cash injection has given Nakheel only some breathing room, however.
The company has slashed jobs and shelved billions of dollars' worth of high-profile projects, such as a building slated to be the world's tallest and a Trump hotel on its signature Palm Jumeirah island. Its and other developers' financial problems have rippled out to the numerous international contractors in Dubai, which have in turn been forced to lay off workers of their own. Nakheel must still find a way to pay back $3.5 billion in loans this year alone.
Besides managing existing and new loans, the new body will have the power to issue bonds locally and internationally, invest in commercial projects, and acquire partial or overall stakes in companies.
Farouk Soussa, a credit analyst at Standard & Poor's, said Wednesday's announcement reiterates the government's commitment to its companies but does not do enough to boost investor confidence.
He said Dubai still must explain when it plans to receive its second $10 billion round of funding and what the money will be used for. Like Lotter, he also said the government needs to explain which companies will qualify for funding.
"This is the question at the heart of investor worries," he said.
