Dubai officials lay out need for financial reform following emirate’s credit crisis

Emirates targets reform after Dubai debt crisis

DUBAI, United Arab Emirates — Dubai officials are outlining plans for financial reforms in the wake of the emirate’s credit crisis.

The governor of the Dubai International Financial Center, a state-run banking hub, said Monday the United Arab Emirates federation is putting in place a “wide-ranging program” aimed at addressing shortcomings in the country’s financial system.

“Although we expect a return to high economic growth, it is critical that we urgently address the deeper risks and challenges that the economic crisis has revealed,” Ahmed Humaid al-Tayer told a banking forum in Dubai.

His comments came hours after the head of Dubai’s supreme fiscal committee, Sheik Ahmed bin Saeed Al Maktoum, said the Emirates plans to implement a debt law and coordinating office to manage borrowing by government-related companies.

Dubai will create a similar office to coordinate debt decision-making on a local level, he said.

Debt problems with some of Dubai’s state-linked firms, particularly the city-state’s Dubai World conglomerate, sparked broader fears about the health of regional economies and the ability of government borrowers to repay their bills.

Dubai World’s credit crisis also renewed concerns about the lack of transparency and extent of government support for lavish spending projects including soaring skyscrapers and manmade islands.

Dubai is one of seven semiautonomous states that make up the UAE federation. Unlike its wealthier neighbor Abu Dhabi, which hosts the country’s capital, Dubai generates only a small fraction of its revenue from oil.

Sheik Ahmed, a top aide and uncle of Dubai’s hereditary ruler, said the changes he outlined Sunday evening were among a number of “urgent steps” being taken on a federal level to address gaps in the country’s legal and regulatory framework.

Emirati officials are also planning to update the country’s largely untested insolvency laws, which analysts have cited as a cause for concern in light of Dubai’s credit woes.

“A clear framework for the financial restructuring and reorganization of companies, based on international principles, is being put in place,” Sheik Ahmed said.

Dubai World last week announced it had won support for a $23.5 billion restructuring plan from leading lenders after months of closed-door wrangling. It says it still needs to persuade its remaining financial creditors to sign on to the plan.

The company’s Nakheel property unit, famous for building islands in the shape of palm trees off Dubai’s coast, is engaged in separate negotiations with contractors over past-due debts. It says suppliers representing more than half of its unpaid bills have signed on to a plan to be repaid with a combination of cash and equity.

The International Monetary Fund estimates Dubai is shouldering as much as $109 billion in debt, prompting concerns that more government-linked companies may face financial challenges.

“I wouldn’t rule out other large and small entities including banks, holding companies, etc. to pursue similar debt restructuring over (the) next 24 months,” Middle East analyst Saud Masud of Swiss bank UBS said in a recent interview.