Dubai has refinanced an Islamic loan, or ijara, worth $1 billion (Dh3.67bn) for Dubai Civil Aviation (DCA), paying $365 million and syndicating $600m, a move that has been in line with analysts' expectations that the emirate would successfully meet all its debt obligations.
The deal part refinances a $1bn three-year loan signed in 2006 and matures this month. The Dubai Government yesterday said it will repay $365m of the facility using its existing resources in three installments beginning in April 2010.
The profit rate on the multi-currency ijara facility or Islamic lease would be three-month dollar Libor or Eibor or Euribor plus three per cent, the government said in a statement.
"The encouraging response received for this syndication illustrates the strong confidence of investors in Dubai's economy," Nasser Al Shaikh, Director-General of the Dubai Department of Finance, said.
"The Government of Dubai will continue to finance infrastructure projects with long-term borrowing as part of its ongoing long-term debt management strategy."
Dr Nasser Saidi, Chief Economist of Dubai International Financial Centre (DIFC), said it is good that the government is now acknowledging that infrastructure and other public spending are "best financed using debt issues/market".
He said the deal, which followed Dubai and Abu Dhabi's bonds issuance implies that the debt market is now reviving.
"Essentially, the debt market is among the first to recover," he told Emirates Business. "Across the Gulf, we are now seeing the beginning of a Gulf debt market. It would take time but the government is already acknowledging that they have to divorce the oil revenues from other activities.
"This is something very positive as it shows the appetite has come back," he said. "There is a clear sign that lending is now resuming. Ever since the Dubai's $10b bond issue, we see that the market is becoming more active. It has been shown in Dubai's issue as well as in Abu Dhabi's issue that has been overly-subscribed."
According to Fahd Iqbal, Vice-President of Equity Research at EFG-Hermes, the facility seems to imply that the Government of Dubai will fund the difference between the $600m raised through the banks and the $1bn that is maturing in April 2009, plausibly by availing funds raised through the recent $10bn bond programme.
He said the pricing also seems reasonable given the current economic situation.
The multi-currency ijara facility consisted of a floating rate tranche of Dh1704m, $100m and €52m. Dubai Islamic Bank acted as the coordinator for the facility. Dubai Islamic Bank, EmiratesNBD, Noor Islamic Bank and Industrial & Commercial Bank of China (ICBC) and West LB acted as mandated lead arrangers and bookrunners.
"This has been in line with our expectations," he told Emirates Business. "We have stated in the past, and more recently since the launch of the bond programme, that Dubai would successfully meet its debt obligations with larger rollovers requiring government assistance," he added.
"We've stated before that the one of the critical factors to watch out for is the level of government assistance required, since this would be reflective of the financial situation of the borrowing entity involved," Iqbal said.
"We have seen larger rollovers have required substantial government assistance [such as Borse Dubai's $2.2bn rollover], and we have mentioned that the smaller loans could potentially be rolled over without government assistance.
"However, the mid-sized loans [$1-1.5bn] was a question mark for us. The fact that more than half this loan was placed with banks is somewhat comforting to us."
Government entities have been tapping the loan market in order to refinance existing debt. Dewa earlier said it would pay its obligations ahead of schedule and unveil details of its long awaited $2.2bn loan refinancing.
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