Dubai plans to set up a program to address weaknesses in its financial system while the United Arab Emirates will open a debt management office to coordinate on issuance for state-linked companies, an official said on Sunday.
Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai's Supreme Fiscal Committee, also said that Dubai's debt restructuring proposal for state-owned conglomerate Dubai World signals the emirate's commitment to state-linked firms.
In order to be better prepared for the future, the Supreme Fiscal Committee, set up to oversee Dubai's fiscal policies, is establishing a comprehensive program to address vulnerabilities in our financial system, Sheikh Ahmed told an economic conference in Dubai.
Dubai World has reached a deal to restructure $23.5 billion in debt with its core lenders, addressing the most immediate of a string of problems facing investors in Dubai, one of seven emirates in the UAE.
The deal, which includes no new money from the government and is broadly in line with proposals made in March, must still be agreed by banks outside the core negotiating panel, which holds 60 percent of the exposure, Dubai World said on Thursday.
The proposal demonstrates Dubai's commitment to ensuring the success of government-related entities while at the same time treating both foreign and local creditors equitably and fairly, Sheikh Ahmed said in his speech.
Dubai, famed for extravagant property projects and a tax-free lifestyle, has struggled to bring its debt burden -- estimated around $100 billion -- under control.
The emirate ran up massive debts to turn itself into a trade and tourism hub, but the global financial crisis and a collapse in oil prices in 2008 brought an abrupt end to a six-year boom.
Sheikh Ahmed said the UAE was taking urgent steps to address gaps in its legal and regulatory infrastructure, and that the government would issue a public debt management law later this year.
Following this, it will establish a debt management office to coordinate the raising of debt for government-related entities. A similar debt management unit is planned to be set up in Dubai to centralize debt decision making, he added.
The emirate stunned global markets last November when it said it would delay repayment of $26 billion in debt linked to Dubai World and its property units, Nakheel and Limitless. Dubai unveiled a $9.5 billion rescue plan in March.
The restructuring deal will be a relief to investors in the emirate, which is struggling with an over-saturated property market, sluggish bank lending and the risk of more debt problems.
But analysts have said the Dubai World deal does little to alleviate the chronic oversupply in Dubai's property market, a key driver of the emirate's growth.
Under the terms of the deal, lenders will wait up to eight years to get their $14.4 billion back, but they will have avoided a so-called haircut on their principal.
The deal offers 1 percent cash interest and an extra 1.5 percent to 2.5 percent per annum rolled up into a lump sum payment on maturity. Dubai will convert into equity the $8.9 billion it is owed by the group.