Government-linked borrowers in Dubai are putting pressure on banks to reduce how much they pay in interest costs on debt without having to go through a formal refinancing process, in an attempt to capitalise on improving sentiment towards the emirate.
Banking sources say that several syndicated loan deals or bilateral loans are currently being repriced by Dubai-based borrowers. “Pricing for Dubai corporates shot up in 2008 as the perceived risk was a lot higher,” says one banker at a local lender in Dubai. “Since the beginning of the year, the improvement in Dubai has led many clients to try to reprice down their loans.”
Already, the Department of Finance has secured a 100 basis points reduction in the pricing of a $800m loan secured on the Salik toll road receipts.
The trend is expected to continue with several other companies understood to already be in talks with banks to reprice their loans. “We have been approached by clients on about five deals and asked to cut the margins they pay or they will go out and refinance the deal,” adds another banker in the UAE
In addition to the improving sentiment in Dubai, local banks are also increasingly liquid and looking to book new assets. As a result, the threat of losing their allocation on a deal convinces most banks to just accept lower pricing. “The local banks normally get called first as they will agree to keep the asset on their books, then the international banks have decide whether to be the only ones not taking the new terms, or just accept it like everyone else,” says one banker at an international bank.
Bankers in the UAE also suggest that the Dubai Duty Free transaction, which raised $1.5bn priced at 3.5 per cent in June 2012, as a prime candidate for being repriced. Another deal bankers are expecting to be repriced or refinanced is the $1.2bn bank loan raised by Jebel Ali Free Zone (Jafza) priced at 4.25 per cent.