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UPDATE 4-Dubai launches broader bond sale, business aid fund
* Dubai targets foreign and local banks with bond sale
* Sets up support fund for economy, local corporates
* Saudi banks up provisions for loan losses
(Adds S&P analyst comments, paragraph 15-17)
By Raissa Kasolowsky and John Irish
DUBAI, July 22 (Reuters) - Dubai launched the second tranche of a $20 billion sovereign bond programme, turning to foreign as well as local banks and setting up a fund to support local companies hit by the fallout of the financial crisis.
The tourism and finance hub, part of the United Arab Emirates, also said it has more tools to raise funds to support state-linked firms. The first $10 billion tranche was sold to the United Arab Emirates central bank.
"It's open to banks, financial institutions inside and outside the country," Abdulrahman Al Saleh, the new director general of Dubai's department of finance, told Reuters.
Hopes the Arab Gulf states would ride out the credit crisis on the back of oil wealth have foundered as the region's real estate boom collapsed, the price of oil fell, and concerns grew over the solvency of some debt-laden private Saudi firms.
Several banks in the region have offered details on exposure to a debt crisis for the Saad Group and another Saudi family firm, and data on Wednesday showed two large Saudi banks hiked provisions for bad loans in the second quarter. [ID:nLH286690]
Dubai said the proceeds from its bond scheme would underpin companies such as Dubai World's Nakheel, developer of Dubai's signature palm-shaped islands, part of its drive to build tourism as an alternative to its income from oil.
Nakheel has $3.5 billion worth of Islamic bonds maturing in December and questions remain over the government's plan for them.
Other state-linked firms include Dubai Holding, owned by the ruler of Dubai, Emirates airline and Emaar Properties EMAR.DU.
In separate comments in an in-house interview, released earlier on Wednesday, Saleh said the government would support its linked companies with funds from the bond issuance, adding:
"But we have strategies to raise additional funds as and when required to support these entities."
Saleh also said a previously published figure of Dubai's $80 billion debt referred to government and government-related debt -- of which $20 billion was owed by the government --adding the state-linked entities debt was "manageable in the long-term."
One London-based fund manager, who asked not to be identified, said any offered spread must take into account the possibility of more issuance by Dubai and uncertainty about how much that could be.
"Most investors outside of the Middle East would need to have more transparency on Dubai's total funding needs and a proper marketing visit by the authorities to explain the situation would be helpful," the manager said.
Last week, the UAE central bank governor said the bank may buy into the second tranche of the programme and would start trading these bonds soon after. [ID:nLF321940]
The key question for bond investors is whether the UAE government, which has a high credit rating, would back the bonds. For Dubai watchers, knowing which companies need the funds and hwo much is also vital.
"The announcement falls short in terms of shoring up investor confidence in the state of Dubai Inc's finances," Farouk Soussa, a Standard & Poor's credit analyst, said.
Dubai said earlier this year it may seek a sovereign rating for its debt issuances.
The fund set up to manage the proceeds from the sale will provide loans on a commercial basis to government and government-related entities "deemed to be of strategic and development importance to the Emirate of Dubai".
Dubai's finance department said the support fund would contribute to "the overall economic development of the emirate". The fund can invest in, hold and manage debt instruments on behalf of the Dubai government, collect loan repayments and reinvest some of the revenues.
The fund will be able to issue financial instruments such as bonds and sukuks and invest in commercial projects in and outside Dubai. It can also acquire partial or whole stakes in institutions and companies, but will not disclose the names of entities that receive support.
"The market will be looking for as much transparency as possible," said HSBC economist Simon Williams. "If they can't tell us who the funds have flowed to, I hope we will know how much has been disbursed and how much is in reserve."
The support fund will be accountable to Dubai's Supreme Fiscal Committee, a government body established in 2007 to oversee the emirate's fiscal policies, according to the statement.
To see a FACTBOX on Dubai's Supreme Fiscal Committee, double click on [ID:nLM187400]
(Additional reporting by Nicolas Parasie in Dubai and Sebastian Tong in London)
(Writing by Amran Abocar; editing by Patrick Graham and Andy Bruce)
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