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14| pfi | Middle East Report 2009 Dubai refis


Goldman Sachs, who were at the top on the original facil- ity, not renewing their commitments. Negotiations dragged on and, with time running out, HSBC eventually launched the deal to the rest of the market without this top group in place on January 12.


Even before the deal was launched, most bankers were sceptical that it would raise the full US$2.5bn. This was soon obvious from sentiment in the market and even in the hours before the deal was due to sign, questions were still being asked about where the shortfall would come from. On February 18, Borse Dubai signed the loan agreement at the full US$2.5bn amount, to the shock of the market. Having raised US$1.2bn in syndication, the deal was saved by Borse Dubai's parent, the Investment Corporation of Dubai (ICD). As well as providing a promised US$1bn equity portion to meet the original US$3.78bn figure, it also made up the balance of the facility by channelling funds through Emirates NBD and Dubai Islamic Bank (DIB) from its own US$6bn syndicated facility from November. The deal, which was for one-year and had a one-year extension at the discretion of the borrower, saw nine con- ventional banks join in syndication: Emirates NBD, Nation- al Bank of Abu Dhabi (NBAD), Bank of Tokyo-Mitsubishi UFJ, Bank of Baroda, ING, Intesa Sanpaolo, Industrial & Com- mercial Bank of China (ICBC), SEB and Union National Bank. DIB was the sole bank to provide the Islamic tranche. The facility paid a margin of 325bp, with tickets and fees of US$100m and 105bp for MLAs; US$75m and 90bp for sen- ior lead arrangers; US$50m and 70bp for lead arrangers, and US$30m and 55bp for arrangers. Those banks that agree to the one-year extension receive an additional 75bp fee. Bankers on the deal felt that raising more than US$1bn from the market was an impressive achievement, partic- ularly as the extension option effectively turned the loan into a two-year facility. They also insisted that it had always been clear there was little chance of meeting such a large financing requirement in the bank market alone, given the circumstances, and the government was always expected to make up the shortfall. The fact that it did under- lined the exchange's strategic importance to the Emirate and, more importantly, showed that Dubai had the liquidity available to support its economy and meet its obligations. News of the successful close of the facility was greet- ed with relief from the wider market, with Dubai's stock markets rallying and its five-year CDS easing 50bp to set- tle at 950bp by the end of the week. Yet Dubai's one-year CDS remained at 1,100bp, suggesting that the market saw a risk of default in the short-term.


The trouble was that while Borse Dubai had managed to complete its refinancing, the underlying concerns over the Dubai economy were still present in the minds of bankers. The high CDS prices reflected the continued fear that Dubai was unable to manage its debt obligations, which still ran at about US$11bn for 2009 – even after Borse Dubai was completed.


Banks, which were still reluctant to part with what liq- uidity they had access to, were unwilling to risk putting their money into the Emirate when a default at some point in the near future was considered a distinct possibility. To make a comparison, the original Borse Dubai deal, launched at a time of confidence that the GCC could escape the worst of the economic crisis affecting the Western world, romped home, attracting more than US$3bn during syndication. The refinancing, undertaken when this perception had been shattered, struggled to pull in US$1.2bn.


News of the successful close of the facility was greeted with relief from the wider market.


Dubai continued to insist throughout the Borse Dubai refi- nancing that it would be able to meet all its obligations with- out triggering a default. However, most financiers agreed that Dubai, despite the comments from high-ranking offi- cials, was swimming against the tide. The lack of support from the international banking community shown during the Borse Dubai deal was a sign that Dubai might have to plug shortfalls in all its refinancings. Most bankers also agreed that Dubai didn't have the resources to do this and it would have to turn to its big brother, Abu Dhabi, to help it with a bailout. The questions of if and when, which had been circling since October, were soon answered. On February 23, Dubai announced plans for a US$20bn bond programme, of which the UAE Central Bank would subscribe to the initial US$10bn tranche of five-year unsecured paper with a fixed 4% coupon. While the use of the term "bailout" was distinctly absent from the gov- ernment statement, even it went as far as admitting that the programme "will secure the necessary funding for Dubai to meet its financial obligations". The news saw the Dubai Financial Market rally in its biggest one-day jump since mid-November. Spreads on Dubai bonds also tightened significantly and the five-year CDS, which declined 50bp after the refinancing closed, dropped by more than 20% to finish the day around the 700bp mark.


The news of the bond issue was a significant boost for Dubai sentiment, with bankers expecting that the US$20bn would be enough to cover the Emirate's obli- gations through 2009 into 2010. For the next refinancing on Dubai's radar, this improvement was tangible. The US$2bn ijara issue that Dubai Electricity and


Water Authority (DEWA) launched in February 2008 attracted good support, closing slightly up at US$2.2bn a month later. However, by the time banks were approached about a refinancing in January, it must have known that it wouldn't be smooth sailing this time. It wasn't helped by the fact that the month before, on December 18, Fitch Ratings had responded to its deteri- orating view of the Dubai economy by downgrading two of its corporates: Dubai Holding Commercial Oper- ations Group (DHCOG) and DEWA. With the other two main rating agencies, Moody's and Standard & Poor's, also having negative outlooks for DEWA, it wasn't the best time to be approaching the market.


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