Gulf sovereign funds seek $8.5bn loans

22 August 2008
Loan facilities to test the demand of local and international banks for fresh debt from the region.

Two Gulf sovereign funds are separately seeking to raise a total of $8.5bn in debt in moves that will test the demand among local and international banks for debt from the region.

Qatari Diar, a government-linked real estate investment fund, is close to launching a e1.7bn ($2.5bn) syndicated loan facility. The Investment Corporation of Dubai (ICD) is aiming to raise $6bn from international banks.

Bankers tell MEED that both firms will face challenges in syndicating the debt as finance houses are highly exposed to the lenders and are finding it hard to secure their own sources of funding.

News of the debt facilities comes just months after the markets left Qatari Diar struggling to secure support for a $2.5bn Islamic loan. It was eventually downsized to $2.36bn after spending longer than anticipated in the syndication stage.

The new Qatari debt is associated with the acquisition of French engineering company Cegelec in July by the Qatar Investment Authority (QIA), the parent company of Qatari Diar. The loan is being underwritten by Qatar National Bank, which also worked on the earlier Islamic loan, which covered the acquisition by Qatari Diar of the Chelsea Barracks in London.

A source close to both Qatari transactions says that because the new deal is priced in euros and is being targeted at European banks, with easy access to euro funding, it should run more smoothly.

“Big international banks are still getting involved in these deals,” he says. “But most regional banks are only lending in their local currencies at the moment, or just to their main clients, so we do not expect much local appetite.”

The lack of liquidity in the market will also affect ICD’s fundraising, with banks already heavily exposed to Dubai. “Our Dubai bucket is full and we just cannot take any more exposure to Dubai,” says one head of syndications at a major regional bank.

In addition to the ICD transaction, Dubai is also trying to raise $1.25bn for Ports and Free Zone World, $1.5bn for Dubai International Financial Centre, $1bn
for Dubai Aerospace Enterprise, and a $2.2bn refinancing facility for Dubai Drydocks.

ICD is aiming for a pricing of 125 basis points above the London interbank offered rate (libor) for a three-year tranche, and 150 basis points for a five-year tranche.

“What we have seen over the past few months is a lot more regional banks saying that their credit exposure limits are full and they cannot come in on Dubai deals,” says one Dubai-based banker. “I think these deals will be a good litmus test of appetite among international banks for increased Dubai exposure.”

He adds that it raises questions over whether Dubai is succeeding in its strategy of managing the timings of its fundraisings. It has previously said it will stagger the deals to prevent different government bodies undermining banks’ appetites for each others debt.

With so many sovereign-related transactions coming to the market at the same time, bankers are expecting some deals to suffer.

“I think the ICD transaction is a good deal that should fare well, but it could have a negative effect on some of the other Dubai deals in the market,” says a source at a large UAE bank says.

ICD is perceived as being one of the stronger borrowers because it has a diversified portfolio of investments in some of Dubai’s biggest companies.

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