Sources say Abu Dhabi National Energy Company will use the funds to consolidate existing debts
Abu Dhabi National Energy Company (TAQA) is close to sealing a $3.1 billion five-year loan which will consolidate existing debts into a new, lower-cost facility, three sources familiar with the matter told Reuters on Wednesday.
The transaction has been finalised by the banks backing the loan, but the firm is still waiting for the assent of the emirate's Debt Management Office (DMO) before it can formally sign the deal, the sources said, speaking on condition of anonymity as the information is not public.
TAQA, which is 74.1 percent owned by the Abu Dhabi government and which reports second-quarter earnings on Thursday, declined to comment.
The DMO needs to approve fundraising by Abu Dhabi government-related entities under rules introduced to prevent excessive borrowing by state companies in the wake of Dubai's debt problems at the turn of the decade.
This had applied to bond issues but is now being applied to loans too, according to one of the sources - an Abu Dhabi-based banker - who said the lack of precedent meant it was taking longer than expected.
"There isn't a template to follow as it's not been done before so they (the DMO) are having to put one together," he said, forecasting assent should arrive by the end of August.
Despite this delay, the loan is being regarded as a strong result for the company, which sought an interest rate that bankers said was difficult to justify in an environment where lower oil revenues were squeezing liquidity in the local banking system.
Pricing on the loan starts at 50 basis points over the London interbank offered rate, although it increases once certain fees have been added.
A number of banks joined the eight lenders that initially backed the loan during a marketing phase which began in June. This allowed the size of the facility to increase from the $3 billion identified at the start of marketing, though not as far as the $3.5 billion the company was said to be seeking in May, when the process first started.
Two of the sources said the banking group's constituents were different from previous TAQA loans, with some traditional lenders to TAQA either not participating or contributing only small amounts.
They attributed this to the tight pricing and concerns about TAQA's financial position: its heavy debt load and falling profits have seen it linked with a possible merger with another Abu Dhabi state-owned company.
The eight initial lenders - Bank of Tokyo-Mitsubishi, National Bank of Abu Dhabi, BNP Paribas, First Gulf Bank, HSBC, Mizuho, SMBC and Societe Generale - put up $300-$350 million each, though some contributions were scaled back slightly after other banks joined the deal, the Abu Dhabi-based banker said.