DIFC Investments has effectively withdrawn a US$350 million (Dh1.28 billion) syndicated loan launched last week, describing the terms offered by banks as "lavish". Goldman Sachs launched syndication of the $350m, one-year loan last week, but given the difficult conditions in global finance, banks offered a margin of 4 percentage points above Libor, much higher that the 0.75 percentage points paid by the borrower in March.
"We feel the pricing of such a transaction should be much better," DIFC Investments' managing director, Bisher Barazi, said yesterday. In response to the costly terms, Mr Barazi said he had changed the terms of the deal, offering an unsecured bond at 2.5 percentage points. If there was no appetite for that, Mr Barazi said the company could raise the money from "internal resources". "Unless there is appetite for the new rate, we will close it," he said.
A senior banking source in Dubai said the likelihood was that the loan would be quietly shelved. DIFC Investments, which is owned by the Dubai Government, signed a $500m loan in March of this year to back its acquisition of the UK's SmartStream Technologies Group, and the debt is due to mature on Dec 4. It is one of a series of loans taken out by Dubai entities that require refinancing. Together, the Dubai Government and companies affiliated with it hold $80bn in debt, balanced against assets of $260bn, according to Mohammed Ali Alabbar, a member of the Dubai Executive Council.
Fitch, the credit rating agency, estimates Dubai entities had about $11bn of loans to refinance in the fourth quarter of this year and another $5bn next year. Abu Dhabi has $8bn to refinance next year, Fitch said. Borse Dubai, another Dubai government-owned company, is in talks to refinance $4.2bn of loans at higher interest rates than it had previously secured. "The timing now is not exactly ideal to refinance," said Salwa Hammami, the head of research at Arqaam Capital. "With risk aversion high, lending rates are expected to be high as well."
The country's corporate sector, which relied on international sources of funding before the credit crisis, is now turning to Gulf banks for funding. If international sources of credit remain scarce, the government may need to provide additional support to banks to help them meet the country's credit needs, according to Moody's. * with agencies firstname.lastname@example.org