Government takes control of Dubai Bank

DUBAI'S government yesterday took over Dubai Bank, a cash-strapped lender jointly owned by the Dubai ruler's investment company and the developer of the world's tallest tower.

The government vowed to pump an undisclosed amount of fresh funds into the bank.

The announcement is a reminder that while Dubai may be recovering from the downturn, it is far from being in the clear after its biggest conglomerate was forced to re-negotiate terms on about US$25 billion in debt.

The emirate continues to grapple with tens of billions in liabilities held by companies with ties to the government and its hereditary ruler, Sheik Mohammed bin Rashid Al Maktoum. In the latest announcement, the government said it acted swiftly to ensure preservation of Dubai Bank's deposits.

"The intervention is designed to ensure that Dubai Bank's business continues uninterrupted while options for the bank's future, whether to be run on a stand-alone basis or be potentially merged with another bank in which the government has ownership, are being assessed," the government said. Dubai Bank is 70 percent owned by Dubai Holding, a conglomerate controlled by Sheik Mohammed. The other 30 percent is held by Emaar Properties, developer of the record-breaking Burj Khalifa skyscraper.

A division of Dubai Holding known as Dubai Group is seeking to re-negotiate the terms on US$10 billion in debt. The conglomerate owns property in the United States and has stakes in several financial companies, including regional bank EFG-Hermes and Europe's Marfin Popular Bank.

It is not clear how much money the bank needs or where exactly it would come from. The government statement said the takeover was supported by the United Arab Emirates' central bank and the seven-state federation's ministry of finance.

Dubai and its many government-controlled companies are shouldering well over US$100 billion in debt, though the total amount of liabilities has never been disclosed.

In March, the emirate signed a final agreement with creditors to repay US$25 billion worth of loans tied to state conglomerate Dubai World over the next eight years. Acute financial problems at the company in 2009 sent tremors through global markets.

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