The United Arab Emirates began to bail out and consolidate Dubai's rattled lenders and cap a building spree on Monday as the former boomtown started cutting state spending in the face of the global crisis. In a major policy shift, the federal government will inject capital into Emirates Development Bank, a newly created rescue vehicle preparing to absorb merging Islamic lenders Amlak and Tamweel, a leading official said. Mohamed Alabbar, a member of the emirate's ruling council, assured investors the Gulf's regional financial hub of Dubai was able to meet its sovereign obligations as pressure from the global financial crisis mounted. “We will see more consolidation, especially with third-party developers, who may be facing some lending difficulties,” Alabbar said at a conference, the first official recognition that Dubai will have to pare back its lofty ambitions. “We are rationalizing our expenditure and consolidating our activities,” he said. Markets took little heart, with Dubai's leading index plunging to its lowest level since November 2004, with real estate developer Emaar Properties leading the way with a 9.5 percent fall. A federally-funded bailout would be a major policy shift for the 37-year-old confederation of seven seaside emirates where the federal government has played more a role of a facilitator than an underwriter of progress. A cash injection would also represent the first big step by the federal government, dominated by the conservative oil-exporting emirate of Abu Dhabi, to bail out high-flying banks in neighboring Dubai, suffering under the global crisis. Gulf woes have been compounded by the fall in oil prices, which have hovered near $50 a barrel in recent days, the level at which many Gulf exporters have budgeted their growth plans. The UAE has resorted to drastic measures to stem the financial crisis in recent days, placing the planned merger of Amlak and Tamweel under a little-known state-run entity called Real Estate Bank, then placing Real Estate Bank into the newly created Emirates Development Bank (EDB), which will receive federal funding and be majority held by the federal government. “The details are being worked out but the new entity will be supported by capital and funding,” Alabbar said. In what marks the end of an era for Dubai, Alabbar said the emirate would now pare its construction ambitions back in anticipation of waning demand after spending the past five years building as much property as fast as possible. “If you have to pull something then you pull something,” said Alabbar, who is also on an emergency committee set up to steer Dubai through the financial crisis. It also marks a fall from grace for Dubai, which seduced investors from Europe, North America and across Asia with the promise of tax-free income, year-round sunshine, luxury accommodation and high-end shopping. From this point on, the emirate would rely on federal support, in part, to extract itself from the mire. “It's a collective effort,” Nasser Al-Shaikh, director general of Dubai's Department of Finance said when asked about intervention. “In some cases you will see the (federal) government helping companies directly.” Alabbar downplayed speculation that Abu Dhabi had bid for some of Dubai's choice assets such as Emirates airlines or Nakheel Properties. Abu Dhabi has long been expected to bail out Dubai, which has virtually no mineral resources but has made an audacious bid to become a regional trade and tourism hub.
