The change in risk appetite in the market has given rise to new trends in big corporate and project financing, according to leading bankers in the UAE.
With the cost of funds increasing, banks are forced to raise their price commensurate with the market, but reputed borrowers do not want this to reflect fully in the margins the banks charge.
"This is the reason why the banks are resorting to charging a high fee over and above the margin," said a banker.
Sources told Emirates Business that the fee has more than doubled in the past year from the range of 50 to 100 basis points, to somewhere in the range of 150 to 250 basis points.
Industry sources said the fee charged on the $2.2 billion (Dh8bn) Dubai Electricity and Water Authority's ijara financing was about 200 basis points whereas the margin was 300 basis points, compared to the margin and fee of 30 and 20 basis points respectively charged on the company's previous facility that matured recently. Banks that participated in the deal refused to confirm or deny.
The fee charged on the $2.5bn one-year facility taken by Borse Dubai in February to refinance part of a $3.4bn loan was learnt to be 75 basis points and that on the $350 million facility availed by Al Ghurair Group recently 105 basis points. Sources said even the Dubai Aerospace Enterprise deals carried fees of about 100 basis points. "The borrowers prefer to be happy with a lower margin at the cost of a higher fee, which is not disclosed to the market normally," one banker said.
The borrowers always want to prove that they have access to funds at lower margins. But the price they pay in the form of a higher structuring fee is costly as this is being paid at the beginning whereas the return to lenders is paid over the tenor of the facility.
The facility providers, on the other hand, cannot take the fee to the profit and loss account at one shot, as the international accounting standards (IAS) require the fee to be amortised over the life of the asset.
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