Dubai's sovereign wealth fund, Investment Corporation of Dubai (ICD) has asked banks to submit proposals on a new $4 billion, five-year loan refinancing, banking sources have said.
The loan, which is the largest to emerge from Dubai since its financial crisis, will refinance existing debt including a $6 billion loan, some of which is due to mature in 2011, a senior loan banker close to the deal said.
ICD could not immediately be reached for comment.
"ICD has issued a draft term sheet and banks have received it but there is no pricing or terms yet," the senior banker said.
ICD's group of 10-12 lenders have been asked to respond to the request and attend a meeting scheduled for next week to discuss the proposals, two bankers said.
Bankers said that some banks could struggle with the five-year maturity requested in light of recent political instability in the Middle East and Dubai's 2009 debt default.
"This is a difficult deal, there is no easy answer. Five years is too long, three years would be better. ICD is not rated -- this is a tall order and a big ask," the senior banker said.
ICD originally launched the $6 billion loan in August 2008 which was split between a $3.75 billion conventional financing and a $2.25 billion Islamic financing.
The loan was completed on a club basis in September with a small group of 10-12 banks after liquidity drained from the market after the collapse of Lehman Brothers.
ICD unexpectely drew down the $6 billion loan in September 2008 to give it emergency liquidity. The loan had originally been earmarked as an acquisition warchest. The funds were placed on deposit with Emirates Bank, a senior banker said, and up to $2.3 billion of the loan was used to help Borse Dubai [BRSDB.UL] refinance a loan in February 2009.
ICD faces a significant hike on its borrowing costs of 125-150 basis points on the $6 billion loan on the conventional and Islamic tranches.
A loan banker said on Friday that loan pricing had doubled for Middle Eastern companies in the wake of political riots that have hit the Gulf region in early 2011.
Many banks also remain uncomfortable taking Dubai and UAE risk after being forced to take losses in Dubai Inc's debt meltdown.
"You would only do this deal from a strategic government perspective, if you're confident that the main cashflow generating assets of Dubai are OK, you see some business opportunities from those and you're comfortable with the risk," the senior banker said.
ICD's existing lenders on the conventional financing are Barclays, Citigroup, HSBC, JP Morgan and Royal Bank of Scotland. The Islamic tranche is led by Dubai Bank, Dubai Islamic Bank, Noor Islamic Bank and Standard Chartered.
Calyon, Deutsche Bank, Emirates Bank, Mashreqbank, Morgan Stanley and UBS also joined the deal ahead of launch. Each bank committed $500 million, which was reduced to around $333 million each.