Dubai fund loans to cost 4 pct, may run assets-paper

DUBAI, July 23 (Reuters) - A new Dubai fund, set up to manage a $20 billion bond programme to aid state-linked firms, will issue loans at 4 percent and could run assets handed over in lieu of debt repayment, a senior official was on Thursday quoted as saying.

Arabic daily Al Khaleej quoted Abdulrahman Al Saleh, the new director general of Dubai's department of finance, as saying that the support fund would only charge administrative fees from recipient firms and that loans will run four to five years.

"The investment powers assigned to the fund are not aimed at practicing investment activities, but it allows it in future to manage some assets presented by borrowing companies as a guarantee for the loans," he told the paper.

He said this would be agreed on with the companies in case they preferred to transfer some of their assets to the fund as a substitute for debt payments.

For now, assets will remain under the control of the state-linked companies even if provided as loan guarantees, he said.

Dubai this week launched the second tranche of a $20 billion sovereign bond programme, turning to foreign as well as local banks and setting up the fund to support local companies hit by the fallout of the financial crisis. [ID:nLM124149]

The emirate did not specify which companies needed support but said the proceeds would underpin firms like Dubai World's Nakheel, developer of Dubai's signature palm-shaped islands, which has $3.5 billion of Islamic bonds maturing in December.

Other state-linked firms include Dubai Holding, owned by the ruler of Dubai, Emirates airline and Emaar Properties EMAR.DU.

The tourism and finance hub of the United Arab Emirates also said it has more tools to raise funds to support state-linked firms. The first $10 billion tranche of the bonds was sold to the United Arab Emirates central bank.

Saleh said the loan period is consistent with the bond's maturity period of five years.

(Reporting by Tamara Walid; editing by Patrick Graham)