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Middle East Report 2009| pfi| 13 Dubai refis

Dubai refis beat fatigue W

hile the Western world struggled to overcome the credit issues brought on by the collapse of confidence in US sub-prime mortgages, the first few months of 2008 were a golden age for

the countries of the GCC. International banks, watching their profits dry up at home, flocked to the region to do business. Many GCC companies took advantage of the money being offered; none with more vigour than those based in Dubai. At one stage, during the month of July, five state- backed Dubai corporates launched loans into the market, on top of existing supply. Bankers were soon quipping that the market was suffering from "Dubai fatigue", given the amount of cash the Emirate was borrowing. However, the collapse of Lehman Brothers and the sharp slump in oil prices proved that a decoupling from outside events was a myth and even the GCC couldn't escape the worst global financial crisis since the Great Depression. As 2008 drew to a close, international loan markets became moribund, and anyone who hadn't completed their deal by the end of September found themselves locked out. This meant that those Dubai firms that had loans maturing in the final weeks of the year found themselves with a stark choice: pay up or default. Access to funds was just not possible, even for companies looking to roll over facilities. DIFC Investments found this out when it looked to refinance a US$500m one-year deal maturing in December. It launched a US$350m one-year loan on November 21, offering a 400bp margin, through Goldman Sachs. However, within 72 hours of the deal becoming public knowledge, it was pulled for being too expensive and the borrower paid the loan off. The experience of DIFC Investments was just a pre- cursor of what was to come. Dubai had US$15bn of obli- gations due during 2009, according to estimates from Moody's, and banks were increasingly nervous of its


attempts to refinance a number of debt obliga- tions in a depressed market were always going to be a diffi- cult battle in 2009, write David French and Solomon Teague .

ability to meet them. This hesitance compounded the restricted access to the loan market for all borrowers to create a situation where many bankers moved away from thinking of if a Dubai default was coming; to a case of when it would come.

The first test would come soon for Dubai, with one of the biggest obligations due in the middle of February. Borse Dubai's original one-year deal, signed in March 2008, had been a resounding success. The US$3.78 facili- ty, raised to fund its US$4.9bn purchase of Nordic stock exchange OMX and its subsequent tie-ups with the London Stock Exchange and Nasdaq, attracted massive interest from banks. This time though, things would be different. Timing was the key problem. Borse Dubai and its lead, HSBC, first approached banks for the deal in September but got squeezed out by the Lehman Brothers fallout and so returned in November. Even in a good year, Novem- ber and December are not good months to approach banks for deals of this size: as the year draws to a close, activity traditionally tails off as credit committees wait until January to assess the tone of the market as activi- ty picks up again. Yet 2008 had tailed off rapidly and expectations for the start of 2009 were very gloomy. Many potential partici- pants were themselves going through a period of reflec- tion and strategic realignment, so obtaining commitments for the region's first major deal of the year presented particular problems. Credit committees were reappraising their commitment to Dubai at a time when, sitting in London or New York, they must have been influ- enced by the constant stream of negative media cover- age from Dubai specifically and the Middle East generally. HSBC's task had been helped by sterling's depreciation against the dollar in late 2008, meaning the £796m por- tion was now much less to refinance. However, this was the only comfort for Borse Dubai. Attempts to attract a top group of banks faltered, with Barclays, Citigroup and

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