Dubai Loans Driven By Local Banks

Dubai’s loan market has entered a new phase in its post crisis recovery, underpinned by a liquid local bank market, which is helping to fill the void left by European lenders still reeling from the emirate’s financial meltdown in 2008.

Island resort Atlantis, The Palm is in the market with an $800 million refinancing, and luxury hotel chain Jumeirah Group is out with a six-year $1.4 billion loan, while fund Investment Corporation of Dubai has closed a $2 billion deal.

The Arab Spring has resulted in an inflow of money into the region, which is now seen as a relative safe haven, and Dubai’s borrowers – many of whom were previously mired in the restructuring of their large conglomerate parent companies – are making the first cautious steps for new money and new investors.

Pushed out at the height of the bubble in 2007-2008 by the inflow of cheaper international money into the region from the so-called ‘suitcase bankers’, liquid local banks are now helping to drive the recovery.

“Regional banks have been well capitalised since the 2009 crisis. Now they are not just participating in big tickets but becoming an important part of the deal structure,” said Simon Meldrum, director, CEEMEA loan syndicate at RBS.

According to Thomson Reuters LPC’s UAE bookrunner league tables, local banks did not feature in the top ten in 2007, which consisted of eight European banks and two US banks.

The switch to local banks is illustrated by Abu Dhabi Commercial Bank, which ranked number 22 in the table that year, having led just one deal, but which is a lead bank on all three new Dubai loans.

ADCB is leading the Jumeirah deal, alongside HSBC and Standard Chartered Bank, and is also a mandated lead arranger on ICD alongside Citigroup, Commercial Bank of Dubai, Emirates NBD and HSBC on the conventional part of the deal. Abu Dhabi Islamic Bank, Dubai Islamic Bank and Standard Chartered are lead arrangers on an Islamic facility.

ADCB is leading the Atlantis deal with National Bank of Abu Dhabi, Commercial Bank of Dubai and Union National Bank, alongside Barclays and HSBC.

STILL STUNG

While local banks, long-term regional stalwarts such as HSBC and Standard Chartered Bank, and US lenders are enthusiastic lenders to Dubai’s borrowers, European banks that were caught up in the emirate’s crisis are more cautious.

“If you take the slope to no activity, European banks are near the bottom of that,” said a London-based European banker. “There is absolutely no chance some of these banks will be looking to do deals in the region. They all piled into the market in 2007 and it is quite common to see European banks still stuck with a $500 million -$1 billion exposure to a single counterparty.”

Another European banker said: “A number of deals we did at the height of the market have had to be restructured or are being restructured: this is still a painful exposure for us; we will not be doing deals there in the near future.”

US banks have fared better, taking a more measured and long-term approach to the region, according to bankers. Only two US banks – Citigroup and Morgan Stanley – appeared in the top ten bookrunners for 2007, but are expected to help to fill the void left by the retrenched Europeans.

“Many of the US banks have been long-term players in the region,” said the London-based European banker. “Pre and now post crisis they have regularly been touted as lead banks.”

The appeal of bank balance sheets supported by the locally based wealth management units of these US banks is attractive for wealthy families and local businesses looking for dollar funding.

“Dollar funding is key to financing and these banks are willing and able to step up and give large commitments to these deals,” said a second London-based banker.

LOCAL ATTRACTION

As part of Dubai Holding, which is still in the process of a long-term restructuring, Jumeirah remains potentially sticky for international lenders. However, there is plenty of appetite from local banks and as a result the borrower has managed to secure an aggressive margin of 275bp over Libor.

In comparison, Atlantis, The Palm’s refinancing, which is looking to attract international as well as local banks, is priced at 500 bps over Libor.

“The Atlantis deal is priced to attract some new-money investors to the financing, and also reflects in part the risk of the single asset lending,” said the first London-based loans banker. “Jumeirah is a punchier price. It is much more of a corporate relationship play on pricing: it is not priced to attract much, if any, new money or investors.”