Banking sources say iconic Palm resort will use funds to refinance existing debt
Atlantis, The Palm, is raising an $850m syndicated loan to refinance existing debt and provide new funds, banking sources have said.
Dubai's iconic island resort is refinancing a $700m, 12-year term loan that was signed in July 2005 and priced at 160 basis points (bps) over LIBOR.
That loan backed the construction of the luxury hotel resort and aquatic theme park.
Atlantis, The Palm, opened in September 2008 as a joint venture between Kerzner International Holdings Limited and UAE holding company Istithmar.
In April 2012, Istithmar acquired Kerzner's 50 percent stake in the property for $250m. The property continues to be managed by Kerzner International Resorts.
The new $850m loan refinancing is being led by Barclays and HSBC with Abu Dhabi Commercial Bank (ADCB), National Bank of Abu Dhabi (NBAD), Commercial Bank of Dubai and Union National Bank, the bankers said.
The loan was launched to a wider syndication on Wednesday and a bank meeting will be held in Dubai next week, the bankers said.
Syndication is expected to be completed by mid June and the loan is expected to be signed by the end of June, they added.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.
Paying old debt with new debt is financially not viable. If I did it as a private person in many countries this would even be illeagle.
Not only is it viable, it makes good sense as the terms of the loan now are probably far better than the terms available to borrowers in July 2005.
If, in 2012, 50% stake in the property was valued at $250m this implies that a year ago the property was valued at $500m.
Today, the owners are negotiating a $850m loan. lets assume that banks are willing to finance at 100% LTV, which is highly unlikely, this means that lenders today are valuing the property at $850m. that's increase in the value of the property by 70% over a period of one year.
lets be more realistic and assume an LTV of 80%. This implies that the lenders are valuing the property at $1,062.5m an increase of value by 112.5% over a period of one year.
That's extremely good news for Dubai's hospitality market unless:
1-Kerzner made a valuation mistake a year ago.
2-Lenders are currently committing an underwriting mistake unless other collaterals are part of the deal.
3-Arabian Business committed a reporting mistake.
Am I missing something here?
Yes - you're missing something. There was already at least one loan on the property of $700m plus Kerzner's 50% stake of $250m and Istithmar's $250m stake gives a valuation of at least $1.2b in 2012.
In addition to that $1.2b, there could be other loans as well.
Istithmar only bought Kerzner's equity in the property so without knowing the amount of all the loans or liabilities, it's impossible to determine the value of the property from the information provided thus far.
You are right. The whole point of this exercise is 'extend and pretend'. Pushing out the term increases the chances of the value going up (allegedly). THe customer keeps the asset, the bank doesnt have to book a bad loan and allocate more capital to it. win win. except it's not really. this is the oldest trick in the book....
The Atlantis is valued at around $4b. An offer was turned down for this figure as reported on Arabian Business from a Hong Kong consortium last year. Worth bearing in mind, the $250m for 50% was the purchase price and not the valued price (as the Kerzner group had to liquidate some its assests and is now only a hotel operator).