Dubai pushes banks on debt repricing

03 July 2013

Dubai Duty Free and Jafza aim to cut debt costs as confidence returns to the emirate

At least three Dubai government-owned entities are in the process of asking banks to lower the pricing of loans taken out only 12 months ago as sentiment toward the emirate improves.

Dubai Duty Free (DDF) is currently in the process of repricing a $1.75bn loan that was signed in early July and Jebel Ali Free Zone (Jafza) is also understood to be preparing to reprice a $1.2bn loan signed a month earlier. Real estate developer Nakheel has also said it is in talks with banks to lower the pricing on AED8bn ($2.2bn) of loans agreed as part of its debt restructuring in 2010.

Banks lending on the DDF transaction are due to respond by 3 July to a request to take 100 basis points off the dirham tranche of its $1.75bn loan and 75 basis points off the margin for the dollar tranche. Bankers involved in the transaction say most lenders are expected to agree to the request. “Some banks are even saying they will increase how much they lend on the deal if required,” says one source involved in the DDF loan.

Jafza has already held informal discussions with its lenders about repricing its $1.2bn loan, according to sources involved in that deal. “We have had discussions with Jafza about repricing and we expect them to formally approach the banks soon,” says one Dubai-based banker. The Jafza deal was priced at 4.25 per cent, falling to 3.75 per cent over the life of the eight-year loan. Bankers say Jafza has aked for 100 basis points off the current pricing.

The deal will be sweetened by a $300m reduction in the debt funded by the proceeds of the sale of Gazeley, a warehouse developer. Gazeley was sold by Economic Zones World, Jafza’s parent company, in early June. “Some of the proceeds from the sale of Gazeley will be used to reduce leverage at Jafza, that will give some comfort to the banks as they also try to reduce the margin,” adds another banker involved in the Jafza transaction.

Sentiment towards Dubai has improved significantly since these deals were signed a year ago. The Credit Default Swap (CDS) rate, a measure of the cost of insuring Dubai debt against a default, has slumped in the last year from 355 basis points a year ago to 239 basis points at the end of June.

As a result the emirate has been actively trying to lower the margin on deals that were signed when investors were still worried about Dubai’s ability to bounce back from a recession in 2009 and a painful restructuring of indebted state-owned companies. Bankers say they expect further deals to be repriced before the end of 2013. “It is the right thing for Dubai to do now and more deals are coming, but banks won’t like it,” says one banker at an international bank.

Jafza did not respond to requests to comment and DDF could not be reached to comment.

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