Lending market opening up

There are signs that the lending market is opening up to UAE borrowers, although banks remain cautious.

Dolphin Energy is close to refinancing a loan.
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There are signs that the lending market is opening up to UAE borrowers, although banks remain cautious as bond and equity markets remain shut, analysts say. The Dubai Electricity and Water Authority (DEWA) and Dolphin Energy, major companies seen as low risk by lenders, are now in the process of securing financing. DEWA today announced the terms of its US$2.2 billion (Dh8.08bn) syndicated refinancing. A total of 18 local, regional and international banks would be involved in the deal, it said. The new loan will have a tenure of three years, with a margin rate of 300 basis points over the London interbank offered rate (Libor). The loan is considerably more expensive than the one it replaces, which had an interest rate of 50 basis points over Libor.

However, Saeed al Tayer, the chief executive and managing director of DEWA, said: "This is a competitive rate... also considered to be a benchmark in this region. "The previous loan, it was in a different time when the cost of borrowing was different." The deal, which complies with the Islamic ban on interest and is structured as an ijara, or lease agreement, is being co-ordinated by Emirates NBD, Dubai Islamic Bank, National Bank of Abu Dhabi and Standard Chartered Bank.

"The fact that this syndicated loan was feasible means that the consortium of banks involved in the deal assumed that DEWA was a solvent client, capable of repaying the loan on the due date and at the agreed terms and conditions," said Sofia el Boury, a banking analyst at Shuaa Capital. Meanwhile, Dolphin Energy, based in Abu Dhabi, is close to agreeing on a refinancing facility for a $3.45bn loan that matures in July, according to Reuters. The new loan, for which Royal Bank of Scotland is advising, will include a $1.6bn commercial tranche and a $500 million Islamic facility, while there will also be a bond issue worth about $500m.

The 10-year loan will carry a margin of 275 basis points over Libor for the first three years, 300 basis points to year six and then 350 basis points thereafter, banking sources close to the deal told Reuters. Dolphin has a gas pipeline project linking Qatar's giant North Field with the UAE and Oman, the first cross-border gas project in the Gulf. It pumps about 2 billion cubic feet per day to the UAE.

The project was financed in 2005 through a $2.45bn conventional facility and a $1bn Islamic loan maturing in July. Mubadala Development, a government-affiliated firm, owns 51 per cent of Dolphin while Total, of France, and the US firm Occidental each have a 24.5 per cent stake. The sponsors will provide a $1.2bn loan to the refinancing package, according to the sources. The refinancing will set a pricing floor for all future project financing initiatives in the Gulf, said a banker. The deal has been popular with lenders as it has the advantage that construction is already completed so there is no construction risk, as well as the presence of strong sponsors and a number of long-term, 25-year off-take contracts.

In a further sign of renewed lending, a $347m syndicated facility was arranged for the Al Ghurair Group, a Dubai-based multi-line conglomerate dealing in a range of services that include banking, travel and property. "The deal was well received by banks, and based on the underlying strength of the project, it was redeeming to see local financial institutions continuing to support businesses with a strong track record," said Abbas Hasan, the head of investment banking at Mashreq Bank. Mashreq is one of the lenders in the syndicate, along with Standard Chartered Bank, Dubai Islamic Bank, Emirates NBD, First Gulf Bank, Ajman Bank, Abu Dhabi Islamic Bank and Arab African International Bank.

The facility has a tenure of 10 years, with proceeds to be used to finance the expansion of Al Ghurair City, a mixed use development in Dubai. "The successful closure of this transaction is a clear demonstration that there is still credit appetite available for well-established and robust businesses operating with the UAE," said Hassan Jarrar, the head of origination and client relationships at Standard Chartered.

Dubai companies need to repay $10bn in debts this year, according to Standard & Poor's Ratings Services. "Debt markets are shut down, so only solvent and low-risk companies have access to loans," said Ms el Boury. * with Reuters shamdan@thenational.ae