Proceeds from Dubai's new $1.25 billion, two-tranche Islamic bond provide enough funds for the emirate to manage its budget deficits and refinancing plans, a senior government official said.

Dubai priced on Wednesday a $600 million 5-year tranche at 4.9 percent and a $650 million 10-year tranche at 6.45 per cent and the department of finance said the issues drew orders of more than $4.5 billion.

'This sukuk issuance provides us enough liquidity to manage our budget deficits and refinancing plans proactively,' Abdulrahman al-Saleh, Director General at Dubai's Department of Finance said in a statement.

'We continue to examine ways to optimize our funding strategy by diversifying our funding options and extending maturities,' he said.

Saleh noted Dubai had been able to reduce its cost of funding on the sukuk, compared to previous debt issuance of similar tenors.

The emirate is still restructuring some debt at state-linked firms, including two significant maturities in 2012 from Jebel Ali Free Zone (Jafza) and DIFC Investments, which have to repay a combined $3.25 billion this year.

Its biggest restructuring - a $26 billion debt deal at flagship conglomerate Dubai World which rattled global markets in November 2009 - was signed in 2010.

Dubai has been recovering from the depths of its 2009-2010 debt crisis helped by strong trade flows with Asia, tourism and its safe-haven status amid a wave of social unrest in the Mena region last year.

'Investors were happy with the steps taken by the government over the last three years to counter the impact of financial crisis and prudent measures to control costs and manage its budget deficit,' Saleh said.

The emirate's budget deficit narrowed sharply to Dh3.7 billion ($1 billion) last year, helped by higher oil income and lower spending on development projects, a prospectus for the latest sovereign bond showed this week.

That represents 1.2 per cent of 2010 gross domestic product, according to Reuters calculations. GDP data for 2011 has yet to be released. A shortfall of Dh1.8 billion is planned for 2012, the prospectus reiterated.

Dubai's direct government debt stood at Dh113.6 billion ($30.9 billion) at the end of March, the prospectus also showed. However, analysts polled by Reuters in March put the emirate's overall debt including government-owned firms at an estimated $118 billion, or 144 per cent of GDP.

The Gulf trade and business hub, which accounts for nearly a third of the UAE's GDP, is aiming for economic growth of 4.5 per cent this year, up from an estimated expansion of more than 3 per cent in 2011, Dubai's top official said in February.

But the worsening global financial conditions could make it more difficult to roll over some of the maturing debt of UAE government-linked entities, the International Monetary Fund said in March, with about $32 billion of sovereign and government-linked debt estimated to mature in 2012, of which $15 billion in Dubai.-Reuters