Dubai’s Emaar Properties has asked lenders on its $800m loan agreed in December 2011 to cut the pricing on the deal in half as a reflection of rising confidence in the emirate’s economy.

The Emaar transaction was completed at the end of 2011 and priced at 350 basis points above the London interbank offered rate (Libor). Bankers involved in the deal say the real estate company has asked lenders to drop the pricing to 175 basis points.

Following the Dubai government’s successful $1.25bn sukuk (Islamic bond) issue in January, a wave of companies have capitalised on improved sentiment towards the emirate by successfully lowering their borrowing costs.

“This is the biggest pricing reduction we have seen so far,” says one banker in Dubai involved in the Emaar transaction. “It looks like they will probably get agreement from all the banks.”

The Emaar deal was funded by the UK’s Standard Chartered, Dubai Islamic Bank and National Bank of Abu Dhabi when it closed in late 2011. It is understood that several other banks have joined the deal. Emaar used cashflows from its Dubai Mall development as collateral on the loan, which has two tranches of five years and eight years in duration.

In mid-July, Dubai Duty Free (DDF), which operates retail space at Dubai airports, announced its lenders on a $1.75bn loan signed in July last year had agreed to lower the borrowing costs by about 100 basis points. At the same time, Jebel Ali Free Zone (Jafza) is in talks with banks to lower the borrowing costs on a $1.2bn loan agreed in June 2011.

Sources say Jafza will reduce the debt amount to just under $1bn using proceeds from the sale of Gazeley, a warehouse developer. Gazeley was sold by Economic Zones World, Jafza’s parent company, in early June. The Jafza deal was priced at 4.25 per cent, falling to 3.75 per cent over the life of the eight-year loan when it was signed last year. If lenders agree to reduce the pricing, it will drop to about 300 basis points in September this year.

“Under the new structure, the deal will go from having a large balloon payment at the end of year eight, to being completely repaid by year seven,” says a banker involved in the Jafza loan.

Investor sentiment towards Dubai has improved dramatically over the past year as the economy has recovered from a recession in 2009 and the drying up of credit markets that forced it to restructure billions of dollars of debt. 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 213 basis points on 20 July.

Emaar declined to comment and Jafza did not respond to requests to comment.