Reply #18: Dubai’s ruler tightens financial controls [View All]

[Demeter]

http://www.ft.com/cms/s/0/768f03bc-eb3c-11de-bc99-00144feab49a.html

Dubai’s ruler sought to boost his oversight of the emirate’s finances on Thursday when a new law increased control over the budgets of government departments.

Law Number 35 of 2009, covering the management of public funds, introduces procedures designed to control spending, said an official statement. The law, replacing one passed in 2006, requires departments to transfer any excess revenues to the public purse.

The measure covers all departments and includes government companies that have tapped credit markets, such as the Dubai Water and Electricity Authority and the state holding company Investment Corporation of Dubai, which owns Emirates airline and a one-third stake in Emaar Properties, a developer.

But the statement made clear: “The law does not in any way relate to government-related entities such as Dubai World and Dubai Holding.”

These two entities are responsible for the lion’s share of Dubai’s $80bn-plus (€56bn, £50bn) debt burden.

The commercial arms of the Dubai government took on significant debt during the petrodollar boom as the emirate expanded domestically and went on an overseas spending spree.

They contributed to the rise of the emirate as a global trading and financial centre, but the economic downturn and the punctured property bubble have since left many struggling.

The new law is the latest in a series of measures intended to bolster the emirate’s regulatory framework after a tough year, culminating in last month’s shock request for a standstill in $26bn of distressed debt at Dubai World.

This week, Dubai took a $10bn bail-out loan from its neighbour, Abu Dhabi, to pay off a $4bn sukuk bond and help the government restructure Dubai World’s holding company and property developers.

The government has announced the formation of an insolvency law and a tribunal focused on disputes arising from the restructuring of Dubai World. If banks fail to agree on a standstill, this process could end in the holding company’s insolvency.

Officials also say a new bankruptcy law could soon come into force across the United Arab Emirates to provide protection to companies, updating outdated existing legislation.