Companies in the six oil-producing Gulf Cooperation Council (GCC) states will find it difficult to secure syndicated loans until the current financial market turmoil subsides, loan market bankers said.
As reported last week, Borse Dubai had begun talks with banks over a syndicated loan that will refinance the company’s $3.78 billion loan agreed in March. Lenders now say it will be very difficult for the company to secure a loan in current market conditions.
The sources said that international banks are not willing to underwrite deals in Dubai or in the wider GCC right now, and that lenders are being noticeably more selective about agreeing deals with borrowers in the GCC compared with their European peers.
“We have seen many banks pull commitments from deals they were due to sign into,” an emerging market loan specialist said.
The lack of liquidity and uncertainty about the future is prompting banks to talk about calling Material Adverse Change (MAC), a clause sometimes included in loan agreements that allows lenders to cancel deals and renegotiate terms, bankers said.
“We need to see a few weeks of market stability in the equity markets, and wider bank and inter-bank funding in particular, before some level of confidence can be determined and one can actually pin-point what the ‘new market’ will look like,” the emerging market loan specialist added.
Dubai government agency DIFC Investments has been negotiating a $1.5 billion syndicated loan and lined up six banks to arrange the facility last month. One banker said it remains to be seen if the loan will come to the market, though another loan banker close to the deal said on Monday he was confident it would still go ahead.
Other Dubai government-owned entities, known collectively as Dubai Inc., are in the process of syndicating loans. Investment Corporation of Dubai is out with a $6 billion loan, while Nakheel, developer of Dubai’s palm-shaped islands, is in the market with a $1.2 billion facility.
Loans bankers welcomed news on Monday that the United Arab Emirates central bank has set up a 50 billion UAE dirhams ($13.6 billion) emergency facility to ease tensions in the banking sector, which is suffering from a liquidity shortage.
Banks in the UAE have been suffering from a liquidity shortage stemming from the global financial crisis, with bankers in the region saying there is a “massive shortfall” of funding.
Three-month interbank lending rates have jumped 170 basis points since early June to 3.61 percent on Monday.
“This will give some much-needed short-term liquidity to the loan market,” a second loans banker said. (Reuters)
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