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Fri 15 Jun 2012 10:06 AM

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Dubai's JAFZA secures $1.2bn loan

Eight banks offer sharia compliant financing to help refinance debt obligation

Dubai's JAFZA secures $1.2bn loan

Dubai government-owned Jebel Ali Free Zone (JAFZA) has secured a $1.2bn sharia-compliant loan from eight banks, a company prospectus said, to help refinance a debt obligation once seen as one of the Gulf Arab region's most challenging in 2012.

The prospectus also confirmed that Economic Zones World (EZW), JAFZA's parent company, is looking to sell UK-based warehouse developer Gazeley. Sources told Reuters in February that Citi had been appointed to advise on a sale of the company.

The Islamic financing facility, combined with a $650m sukuk completed on Tuesday, will be used to repay a $2bn-equivalent Islamic bond maturing later this year, repayment of which had been brought forward by the firm.

Abu Dhabi Islamic Bank, Citigroup, Dubai Islamic Bank, Emirates NBD, Mashreqbank , National Bank of Abu Dhabi, Samba Financial Group and Standard Chartered will fund the $1.2bn facility, according to the sukuk prospectus.

The amortising facility is due to mature in 2020, the prospectus said.

According to a June 13 note from JP Morgan, there will also be a cash sweep of 100 percent of excess cash while total debt remains above four times operating earnings, dropping to 50 percent once the ratio falls below that mark.

Under a cash sweep, any net profit made by the company is used to automatically pay down debt, on top of regular repayments, thereby shortening the time to maturity.

Leverage will stand at around six times operating earnings once the existing sukuk has been refinanced, according to a June 12 note from frontier investment firm Exotix, which warned that only "some aggressive cost cutting and painful deleveraging" would bring the ratio down from current levels.

Pricing on the loan ranges between 3.75 percent and 4.75 percent over the Emirates Interbank Offered Rate (EIBOR), the prospectus said. No further details were provided.

EZW has pledged up to $300m for JAFZA from the proceeds raised by the Gazeley sale, and should the sale be completed, funds will be used to part-repay the bank facility, the prospectus added.

EZW is part of the Dubai World umbrella, which bought Gazeley from Wal-Mart Stores in 2008 for an estimated £300-400m ($467-$623m).

The loan will supplement the $650m seven-year sukuk JAFZA priced earlier this week. That issue carried a profit rate of 7 percent and was more than three times oversubscribed.

The rest of the maturing sukuk will be repaid with internal cash resources.

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