Dubai’s Ports & Free Zone World, a subsidiary of Dubai World, has approached banks for a $850m five-year loan deal.

The company has appointed the local Emirates NBD, Germany’s Deutsche Bank, the UK’s HSBC and the US’ Citigroup to arrange the deal.

Banks have been asked to respond to the deal with commitments of between $25-100m by 28 July. The margin on the deal is 350 basis points above the London interbank offered rate (Libor) and commitments are expected to be largely denominated in dollars.

Proceeds from the loan will be used to refinance a $1bn dual currency loan that was put in place in September 2008 and matures in September this year.

One banker close to the deal says: “Sentiment to Dubai is improving and people are much happier about Dubai risk now than they were one or two years ago.”

Dubai World is the conglomerate at the heart of Dubai’s debt problems, which has restructured about $25bn of debts.

In the prospectus for its listing on the London Stock Exchange in June, Dubai ports operator and another Dubai World subsidary DP World, revealed that Ports & Free Zone World was considering its options for refinancing the $1bn loan due in September. The document said: “Options to refinance the facilities include inter alia, further bank loans, asset disposals, public market bond issues (including equity-linked bonds) or the sale of shares in the company.”

Dubai government-owned companies have had a successful run at getting banks to extend credit to them recently. Investment Corporation of Dubai (ICD), the emirate’s sovereign fund that owns stakes in government firms such as Emirates Airline and Dubai Aluminium, raised $2.8bn in a five-year deal priced at 350 basis points above Libor, while the government also raised $800m in a deal secured on revenues from the Salik road toll. That deal attracted enough interest for pricing to be dropped by 25 basis points to 325 basis points above Libor during syndication.