Borse Dubai’s parent company, the Investment Corporation of Dubai (ICD), is seeking to secure support from banks for a $2.5bn refinancing deal for the stock market group, as the mid-February deadline for closure on the deal approaches.

The government-owned investment body is taking a central role in meetings with potential investors. It is urging banks to back the deal on the strength of its existing relationships with them, sources close to the negotiations tell MEED.

ICD has close relationships with the US’ Citigroup and JP Morgan, and the UK’s Barclays, HSBC and RBS. Of these, only HSBC has so far been confirmed as being involved in the refinancing.

The deal was launched on the market in mid-January, with a deadline for financial close of 17 February, when Borse Dubai’s existing $3.5bn facility expires.

The refinancing deal has struggled to attract commitments from banks, and sources close to the deal say they are uncertain if it will garner enough financial support before the deadline.

It is not clear what will happen if the funds are not in place by the deadline. However, ICD could be called on to make up the shortfall between the bank commitments that are received and the total $2.5bn needed. Failing that, Borse Dubai could default on its loan.

Among its assets, ICD raised $6bn in debt from a consortium of Gulf and international banks in November 2008 (MEED 14:11:08). It is not clear whether this or other assets could be used to bail out the bourse group if the refinancing were to fail.

“I do not know whether Borse Dubai will be a success or a failure, and everyone is looking to this deal to give an indication of the direction in which the market is going,” says one Dubai-based banker close to the deal.

The refinancing is being led by HSBC, and several regional banks are understood to have been approached to act as arrangers on dirham-denominated and Islamic tranches. However, as MEED went to press, terms had yet to be agreed.

The close involvement of ICD is an indication of the seriousness of the problems facing Borse Dubai.

“There is a lot of nervousness about the Borse Dubai deal,” says one banker who declined an invitation to join the deal.

Borse Dubai was unavailable for comment on the deal as MEED went to press.

The problems Borse Dubai is having in refinancing are further evidence that the Middle East loan markets remains in difficulty. Despite issuers trying to raise more than $6bn over the coming months, bankers say many of the deals could struggle to reach financial close.

Abu Dhabi government-owned International Petroleum Investment Company (Ipic) recently appointed Deutsche Bank to raise a $1bn, three-year loan to finance its acquisition of a stake in Papua New Guinea’s Oil Search, while Dubai Electricity & Water Authority (Dewa) is sounding out banks for a refinancing of a $2.2bn facility that matures in April.

State-owned developer Qatari Diar is also still in the syndication phase of a e637m ($801m) refinancing of a loan for its acquisition of French engineering group Cegelec.

Bankers say pricing may have to rise even further to convince banks to start lending again. “There is huge liquidity out there, but now it comes at a cost and, at the moment, banks are happy to sit on their capital,” says the head of syndications at one international bank in Dubai.

Banks are currently being offered a pricing on the Borse Dubai deal of 425 basis points over the London interbank offered rate (Libor). The original Borse Dubai deal, in March 2008, was priced at 130 basis points over Libor. That was financed by Bank of Tokyo-Mitsubishi, Barclays Capital, HSBC, Citigroup, the US’ Goldman Sachs and Dubai-based Emirates NBD.

“When banks stop lending and begin collecting cash from other parts of their operations, they end up with lots of liquidity,” says one investment banker at a Dubai-based bank.

“But the biggest issue is how conservative people have become.”

The main source of liquidity for the new deals is expected to be international banks. “There are still not many signs of life in the local banks yet, the exception being the Islamic banks, which seem to have avoided a lot of the problems [that have been] hitting conventional banks,” says the head of syndications.

Debt issuers are expected to focus on a series of high-value refinancing deals coming to the market this year, with little fresh debt being raised for new deals.

“In this market, it is never too early to start talking to banks, even if you do not need the money until December,” says the Dubai-based investment banker.

International investors’ confidence in the Gulf debt market was dented in January when Kuwait’s Global Investment House (GIH) defaulted on a $200m loan.

“A lot of people in New York and London are asking how GIH was allowed to default, and it is having an effect on their views of the region,” says another Dubai-based investment banker.

Although there is some activity in the loan markets, regional bond markets remain inactive.

“Globally, the bond markets are starting to see some activity, but it will still be some time before we see emerging markets issuance coming back,” says the head of fixed income at one international bank.

Key facts

• Value of refinancing deal sought by Dubai Borse: $2.5bn

• Value of existing finance facility that expires on 17 February: $3.5bn

• Debt raised by ICD in 2008 that could be used in refinancing: $6bn