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Middle East Report 2009| pfi| 15


Even before the deal was launched, most bankers were sceptical


Such reservations were voiced by the CEO, Saeed Mohammed Al Tayer, on February 17, when he admitted that the loan amount could be scaled back because its requirements had been changed by the economic con- ditions. What wasn't helping was the underwhelming response to Borse Dubai, with bankers predicting that the DEWA facility might also only reach about US$1.2bn. However, by this point the Dubai government had taken much of the responsibility away from the lead banks and was self-arranging the deal to try and get it done. The announcement of the sovereign bond programme certainly helped DEWA's cause. Suddenly, bankers on the deal were talking about rolling over the full US$2.2bn, instead of scraping up US$1.5bn or US$1.7bn. With the immediate worries of a default pushed back, bankers started to look more at the fundamentals of the borrower, with its constant revenue stream being a good selling point in a recessionary environment. DEWA was also working hard, with its adaptability in the difficult mar- ket being praised by bankers signing up. A senior group of banks filed their commitments by early March, by which time the deal had been opened up to local institutions. It was extremely well received by these banks and by the middle of the month a fully sub- scribed deal was the predominant rumour in the market. The deal was signed on April 7 with 18 banks in total on board. Things had shifted around slightly at the top, with DIB and Standard Chartered joined by Emirates NBD and NBAD. The latter two had taken the place of RBS, which had opted for a smaller role on the deal. The ijara facility had also added a conventional tranche to open the liquidity pool to all banks. On the conventional tranche, which made up US$726m of the total, were Emirates NBD and NBAD (both MLAs), Lloyds TSB Bank (lead arranger) and Bank of Baroda, Com- mercial Bank of Dubai, State Bank of India and WestLB (all arrangers). On the US$1.474bn Islamic portion were Al Hilal Bank, DIB, Samba Financial Group and Standard Chartered (all MLAs), Badr al-Islami, Calyon, Citigroup, Emirates Islamic Bank, Intesa Sanpaolo and RBS (all lead arrangers), and Dubai Bank (arranger).


Both the size and currency of commitments varied across the board, with banks asked to allocate what they were com- fortable with. This led to dirhams, dollars and euros all being included in the final deal. The margin had also shifted with the sentiment, with banks signing on at 300bp. This was down on both the 400bp rumoured at the beginning and the 350bp mooted through most of the negotiations. At the same time as the DEWA deal was happening, a smaller facility was also trying to attract commitments. Dubai Civil Aviation Authority (DCAA) was a much small- er task than DEWA: a US$1bn ijara issue signed in May 2006 by nine banks to fund the development and expan- sion of Dubai International Airport. However, it posed its own challenges as well.


The impact of Dubai fatigue hangs over the Emirate.


News of talks to refinance the deal surfaced in early March, meaning that it benefited from the fillip that the bond pro- gramme gave. However, the original club deal was funded by eight international banks and one local, lead manager DIB. It was clear this time around, with foreign banks limiting their commitments to Dubai and focusing on the DEWA deal, that DCAA would have to draw capital from the region. With the liquidity constraints hampering regional insti- tutions, despite the best intentions of governments to bolster confidence and capital in various ways, this was going to be a difficult task. By the time the Dubai government announced that the refinancing had closed on April 6, US$635m had been committed by eight institutions; the majority (US$463m) in dirhams, with other contributions in dollars and euros. The margin was 300bp, with the facility to be repaid in three semi- annual payments beginning in April 2010. Along with DIB, the seven who joined were Emirates NBD, ICBC, Noor Islamic Bank and West LB as MLAs and bookrunners and Commercial Bank of Dubai, Mashre- qbank and Union National Bank. The remaining US$365m came directly from the Dubai government. It was the sec- ond time in two months that the Emirate had been forced to intervene and supplement a refinancing. The DCAA transaction showed that the sovereign bond programme would not be the answer to all Dubai's refi- nancing problems. While the immediate threat of defaults has diminished, there are still underlying concerns over Dubai's ability to manage all its obligations. The continu- ing saga over construction firms not being paid by state- backed developers and the restructuring of Nakheel's US$3.5bn sukuk issue, due in December, are just two of the more prominent signs that Dubai is still stretched. Existing problems that were masked by the more immediate default threat at the beginning of the year have also returned to prominence. The local liquidity issues, such as the shortage of dollars and the creditworthiness of banks, are still a problem and will continue to ham- per attempts to tap local capital.


The impact of Dubai fatigue also hangs over the Emi- rate. With a number of refinancings and a reduced num- ber of banks, institutions will pick and choose which corporates they back. This was a problem at the height of the loan boom in 2008, with big-name borrowers, such as ICD, squeezing out the less well-known names. Such a scenario has already manifested itself, with DEWA attracting the attention of the international banks and DCAA left to try and drum up support from local shops. This will continue for the rest of the year, meaning Dubai will have to be careful how it structures its pipeline. Ultimately, while the situation has improved slightly, Dubai has not made it through the storm. It will find itself needing to support the refinancing efforts of its corpo- rates for some time yet; whether it is through logistical support, as on the DEWA deal, or through more direct, financial action, as it did with Borse Dubai and DCAA.


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