Qatar Aviation looks to reprice $650m loan

21 September 2010

Sovereign backing helps Qatar Aviation to halve interest rate on $650m loan

Qatar Aviation Leasing is trying to use a sovereign guarantee to get lenders to agree to drop the interest cost on a $650m loan arranged earlier this year by half.

The company received commitments of around $2bn when it syndicated the deal in March, with banks attracted by a deal with a guarantee from the Qatari government, but paying a high return of 250 basis points above the London interbank offered rate (Libor).

Even at the time pricing was considered to be lucrative for the lending group considering the strength of the Qatar government’s finances. The UK’s Standard Chartered and Germany’s Deutsche Bank, who arranged the deal, are now trying to get the banking group to agree to drop the pricing to 125 basis points above Libor.

Banks have until the end of September to agree to the new pricing, which will bring the deal more in line with the cost of Qatar sovereign risk. The high price of the deal is a result of Standard Chartered and Deutsche Bank underwriting and funding the loan in late 2009, when markets where panicked by Dubai World’s announcement that it needed to restructure around $25bn of debt.

One banker involved in the deal says, “Clearly the markets have moved on a lot since this was funded, so the new pricing is more reflective of the Qatar sovereign guarantee.”

The high pricing in the original deal helped attract the huge volume of interest that Qatar Airways received. The banker adds, “Some banks may not want to stay in the loan at the new pricing level, so new commitments could have to be sought.”

Qatar Aviation Leasing is a company set up to purchase and lease aircraft to Qatar Airways.

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