DUBAI - Dubai's ruler set up a panel to protect creditors of troubled mortgage lenders Amlak AMLK.DU and Tamweel TAML.DU on Wednesday, whose long-planned merger is slated to occur in early 2010.

Dubai, whose reputation took a big hit after it asked for a delay in repaying $26 billion in debt linked to flagship firm Dubai World DBWLD.UL on November 25, has been trying to put its financial house in order in recent weeks.

In the latest move, Dubai's ruler ordered the creation of a judicial committee to protect creditors and companies related to the two lenders, a statement from Sheikh Mohammed bin Rashid Al Maktoum's office said.

It gave no more details about the latest panel or why it has been set up.

Officials at Amlak and Tamweel were not immediately available for comment.

What's happening really is that Dubai is trying to restructure many of its high risk entities, said Saud Masud, an analyst at UBS. It is taking on the responsibility of making sure that whatever they can fix, they fix first and whatever needs federal support then goes to the federal teams.

Shares in the two Dubai-based Islamic firms were suspended last year and have not traded since.

In November 2008, the United Arab Emirates federal government announced it would merge them and a state panel has since recommended combining them into a single Islamic bank.

Last month, Tamweel's chairman Sheikh Khalad bin Zayed al-Nahyan said the merger would take place in the first quarter.

The committee will be the only judicial body ... with the right to review all requests and legal claims related to settling the financial issues of the two companies, the latest statement said.

Given that these two key, UAE Islamic home finance institutions have been in policy limbo for over a year, their lenders and creditors are probably quite concerned about any exposure they have, said Khalid Howladar, an analyst at Moody's.

The firms both felt the brunt of the property collapse that hit Dubai last year and have since suffered a dearth of liquidity, absent or minimal property-related income and deteriorating asset quality.

DUBAI TAKING OWNERSHIP

Wednesday's announcement comes amid rising criticism about the emirate's legal structure.

This month, Dubai has enacted a bankruptcy law modeled on international ones, set up a tribunal to resolve Dubai World disputes, tightened prison terms for corruption and ordered all state departments to transfer all revenues to the treasury.

An 11th hour bailout from neighboring Abu Dhabi helped Dubai stave off default on a $4.1 billion Islamic bond issued by Dubai World property unit Nakheel.

The conditions of the $10 billion lifeline call for Dubai World to agree an acceptable standstill with creditors on its debt.

The expectations set now is that Dubai has to take ownership of all its risks because otherwise everything is a bailout if everything goes back to Abu Dhabi's balance sheet, Masud added.

Earlier this week, Dubai Properties Group, owned by the ruler of Dubai's holding company, replaced several executives including its chief financial officer and pledged better corporate governance to improve operations.

Dubai has faced several high profile corruption cases, including ones linked to top officials at Tamweel and Dubai Islamic Bank DISB.DU.

Three former Tamweel executives, suspected of embezzlement, were released in July, after prolonged detainment periods.

Dubai-based lawyer Wael al-Tunsi said it was unclear whether the panel would handle criminal or civil cases or both.

I think this is an attempt to reach the best settlement for cases related to both companies, otherwise it's too complicated and might not be beneficial to anyone, he said.

(Additional reporting by Rania Oteify; Writing by Amran Abocar; Editing by David Cowell and Hans Peters)

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