Aviation authority to refinance sukuk

16 October 2009

State-run airports operator is in talks with banks over restructuring $1bn debt by 4 November

The Dubai Civil Aviation Authority (DCAA) is in talks with banks about refinancing its $1bn sukuk (Islamic bond), which matures in November.

The banks approached include the UK’s Standard Chartered Bank, Dubai Islamic Bank, Bank of America-Merrill Lynch, and Bank of Tokyo Mitsubishi. Several bankers close to the discussions confirm that DCAA has talked to all four institutions. “Talks have been going on for some time about how to deal with the maturity of this sukuk,” says one banker.

DCAA’s $1bn sukuk matures on 4 November. A special-purpose vehicle called Dubai Global Sukuk issued the debt on behalf of the DCAA in 2004.

The bankers say that if the DCAA is to refinance its $1bn debt, it will have to move quickly to ensure that a new debt vehicle is in place before the sukuk matures.

State-owned real estate developer Nakheel issued a separate $3.5bn sukuk in 2004. It matures on 14 December.

“Dubai’s bonds have had a good rally over the past few months as investors have come around to the view that they will be repaid at maturity,” says one Dubai-based bond trader at an international bank.

In April, the Dubai government gave DCAA $365m to help it refinance a $1bn Islamic loan, after it only managed to secure $600m in commitments from banks.

This followed earlier signs that bank appetite for lending to Dubai-based companies was falling. State-owned Investment Corporation of Dubai helped Borse Dubai refinance a $3.4bn loan in February by giving local banks $1bn on the condition they lend the money to the stock market operator. Bankers say they expect plenty of interest in new DCAA debt because the Dubai government effectively stands behind the company.

The DCAA could not be reached for comment.

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