x Abu Dhabi, UAEWednesday 17 January 2018

Goldman Sachs to set up loan for DIFC Investments

The $350m facility seen as test case for Dubai credit in the worst lending environment in 80 years.

DIFC Investments has mandated Goldman Sachs to arrange a US$350 million (Dh1.28 billion) syndicated loan in what some are seeing as a test case for Dubai's ability to borrow in the worst credit environment for 80 years. DIFC Investments is the investment arm of the Dubai International Financial Centre. Proceeds of the loan will be used for "general corporate purposes", according to a source.

"It's a test, an excellent way to test the waters," said Ahmad Shahin, a senior associate of Shuaa Capital's research team. "$350m is nowhere near the amount of debt that Dubai has borrowed in the past and they definitely need much more than that going forward." The syndicated loan, which is a loan offered by a group of lenders collaborating to supply funds for a single borrower, has a one-year term.

Dubai has a total debt of about US$77bn outstanding. Next year, about $27bn of loan facilities will become due for UAE entities, according to the ratings agency Standard & Poor's. The loan market in Dubai has been closed since the collapse of Lehman Brothers. The $350m loan includes measures designed to encourage commitments from lenders. Banks in the Gulf and Europe, struggling with dollar liquidity, are invited to commit in dirhams or euros, while the margin of 400 basis points is up from 75 basis points paid by the borrower previously.

Banks are invited to commit $25m to the deal, for which they will receive an upfront fee of 125 basis points. Dubai's frail loans market is still trying to get back on its feet as banks continue to struggle with the effects of a credit crunch and a lack of liquidity, making it difficult for firms to raise funds. "Most of the local banks are trying to get their loan-to-deposit ratios much lower than what they are right now; perhaps when they reach [low levels], there will be an ease to lend back into the local community," said Mr Shahin. "However, they will not be as aggressive as they were before."

The Central Bank has called for banks operating in the country to maintain healthy loan-to-deposit ratios. * with Reuters shamdan@thenational.ae