Abu Dhabi state fund Aabar Investments, weakened by a slump at key assets, faces a near doubling in borrowing costs as it closes in on a refinancing package to repay a $2bn loan due in May, banking sources said.
The fund, the top shareholder in Italian bank UniCredit and a stakeholder in commodities trader Glencore, is relying on a guarantee from parent International Petroleum Investment Co (IPIC) to secure the funds, the sources told Reuters.
Aabar has borrowed heavily to build up its holdings but has kept a low profile in recent months, mirroring the stance taken by the oil-rich emirate as it conducts a strategic review of its state-linked firms.
The euro zone debt crisis has dragged on the value of the fund's assets and IPIC saw its 2011 profit all but wiped out after it took a $3.4bn writedown on Aabar's stakes in UniCredit and automaker Daimler.
Banks have become wary of Aabar's creditworthiness, sending its borrowing costs up and forcing it to seek support from its well-regarded parent, the sources said.
Aabar, which did not respond to requests from Reuters for comment, is close to signing a $2.5bn loan, three banking sources told Reuters on Thursday.
The new lending is split between a three-year tranche, priced at 260 basis points over the London interbank offered rate, and a five-year portion which pays 290 basis points.
Around 10 lenders have agreed to finance the deal which could be signed as early as this week, the sources said, speaking on condition of anonymity as the matter is not public.
The previous three-year loan paid 150 basis points, while Investment Corp. of Dubai, the emirate's flagship investment vehicle with stakes in Emirates airline and bank Emirates NBD, is offering to pay 215 basis points for a new $2bn five-year loan.
Bankers were unanimous in saying Aabar's loan would have struggled if IPIC had not played such an active role.
One Gulf-based banker said IPIC, which owns 95.5 percent of Aabar, told banks it would be beneficial for their continuing relationship with it to join the Aabar loan.
"As an investment company, Aabar's quite a difficult credit for people on a standalone basis. However, the IPIC ownership is a big benefit," said one London-based banker.
IPIC, an Abu Dhabi government investment vehicle, provided a letter of support which stated it would stand behind the debt if Aabar was unable to repay, one of the banking sources said.
Lenders gave the offer of support different weighting, the banker added, because the belief in sovereign-linked guarantees for Gulf borrowers was heavily damaged by the restructurings at Dubai investment vehicles like Dubai World - where banks wrongly thought the government would stand behind these entities' debts.
It is not the first time that IPIC has stepped in to arrange financing for Aabar.
In 2011, the investment firm took a $1.9bn loan from Abu Dhabi Commercial Bank to finance the acquisition of Aabar's 25 percent stake in Malaysia's RHB Capital from the Abu Dhabi lender.
IPIC, an energy-focused investment firm which had assets worth $65.3bn at end-2011, has stakes in Canada-based Nova Chemicals, Spain's Cepsa and Austrian oil group OMV.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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