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London: The Government of Dubai is raising a further $16.5 billion of loans for its commercial subsidiaries in the syndicated loan market and is turning to European and Asian lenders to counter a lack of liquidity among local banks, banking sources said.
The Government-owned entities — known in the loan market as Dubai Inc — will bring state-backed borrowing to $32.5 billion this year, as the emirate has already completed $16 billion of loans in 2008, according to Reuters Loan Pricing Corp data.
Sovereign-backed Dubai World unit Port & Free Zone World, Dubai Financial, Dubai Holding, Dubai Drydocks, Dubai Aerospace Enterprise, Palm District Cooling and DIFC Investments are currently syndicating $9.1 billion of loans in the market.
In addition, state-owned Investment Corporation of Dubai (ICD) is in talks with lenders for a $6 billion syndicated loan and Nakheel Group, developer of the palm-shaped islands off Dubai's coast, is agreeing a $1.3 billion loan, a banking source said.
Annual figures
The $32.5 billion of loans planned for the year so far dwarfs Dubai's government-linked borrowing of $9.3 billion for the whole of 2007, according to RLPC data.
The loans are relying on European and Asian bank liquidity as regional Gulf lenders are struggling with increased funding costs and limited access to dollar funds stemming from uncertainty over the dollar peg to local currencies.
"There is no liquidity in the Middle East," a banker said.
Loans are now being structured to incorporate tranches in regional currencies, particularly in dirhams, but regional bank participation has been limited even on this basis and loans continue to rely on foreign bank participation.
Dubai World's recent $5.5 billion loan was arranged by seven banks from Europe and Asia together with two Gulf banks.
The deal allowed commitments in dirhams but only 22 percent of the loan was committed in local currency.
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