Emaar Properties PJSC, developer of the world’s tallest skyscraper in Dubai, is raising a $1.5 billion Islamic loan to replace an older facility as interest rates decline, three bankers with knowledge of the matter said.
Dubai Islamic Bank PJSC, Mashreqbank PSC, Noor Bank PJSC, National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC are providing the loan, said the bankers, asking not to be identified because the information is not public yet. Emaar, which is planning an initial public offering of its malls unit later this year, will pay interest of 1.75 percentage points over the London interbank offered rate on the seven-year facility, which will help repay a $980 million conventional and Islamic loan from 2011, according to the bankers.
Companies based in the United Arab Emirates, the second-biggest Arab economy, are seeking to benefit from falling interest rates and surplus cash at banks as the country recovers from the credit crisis. Abu Dhabi’s Emirates Steel Industries PJSC received more than $5 billion of bids for $1.3 billion in loans it sought in March, helping cut the price by a fifth, three people familiar with the deal said at the time.
The price on Emaar’s loan is “a consequence of the very strong liquidity at regional banks and the intense competition between them,” Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said by e-mail. “Syndicated loans remain a very favorable alternative to raise funds” compared with the bond market, he said.
U.A.E. banks’ customer deposits grew 9.5 percent last year, outpacing a 7.1 percent rise in lending, according to central bank data. The surplus cash helped lower the three-month Emirates interbank offered rate, that is used by banks to price some loans, to 0.73 percent today, the lowest since at least 2006 when Bloomberg began collecting the data.
Emaar said on May 26 it plans to list 25 percent of its retail division on the Dubai Financial Market. Its shares fell 3.9 percent to 9.75 dirhams at the close in Dubai, paring the advance this year to 40 percent. The emirate’s benchmark index declined 3.3 percent, trimming its 2014 gain to 44 percent.
“In the context of the proposed public offering of Emaar Malls Group, the company is in the process of assessing and optimizing its capital structure taking into consideration the best interests of all stakeholders,” Emaar, controlled by Dubai’s government, said in e-mailed comments today. “The outcome of such a process and relevant details will be included in the IPO prospectus and made available to the public.”
Some companies in Dubai, which was on the brink of default in 2009, are taking advantage of the emirate’s improving credit profile and a rebounding property market to drive down loan costs. Jebel Ali Free Zone FZE, a business park operator, negotiated a 1.25 percentage point cut on a $1.2 billion Islamic loan in September, and airport retailer Dubai Duty Free in July reduced the interest rate on a $1.75 billion loan.
Emaar’s new facility is backed by mall receipts, one banker said. The 2011 loan paid interest of 3.5 percentage points over Eibor, and was cut to 1.85 percentage points higher than the benchmark in September, MEED reported.
The company’s $500 million of Islamic bonds due July 2019 trade at a spread of 1.82 percentage points over the benchmark midswap rate, according to data compiled by Bloomberg.
A spokesman for National Bank of Abu Dhabi declined to comment, while a spokesman for Abu Dhabi-based First Gulf Bank didn’t respond to a phone call seeking comment. Nobody was immediately available to comment at Dubai Islamic Bank. Spokeswomen for Mashreqbank and Noor Bank, both based in Dubai, didn’t respond to e-mailed requests for comment.
(An earlier version of this story corrected pricing of the new loan.)