Dubai Duty Free raises $1.75bn in largest syndicated loan since the 2008 financial crash

The state-owned Dubai Duty Free announced the completion of a $1.75 billion syndicated loan with 26 global and local banks to fund the expansion of airports and associated infrastructure in the city, the largest loan since the global financial crash in late 2008 that brought the Dubai boom to a sudden stop.

Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Citi, Dubai Islamic Bank, Emirates NBD and HSBC participated as book runners and mandated lead arrangers. The six-year syndicated loan was oversubscribed and included conventional and Islamic facilities, according to a statement.

Bouncing back

It is less than a year since Dubai signed off a $25 billion restructuring plan for Dubai World for debts left over from the real estate crash in 2009. The new loan signals that Dubai can now again raise large amounts in debt markets.

Interest rates on such debt have also plunged though no details were immediately available about the cost of the latest loan. But they are likely to be advantagous with record lows for interest rates posted in many markets last week.

However, this does not likely mark the start of another blank check for the development of Dubai. The UAE Central Bank has been trying to impose lending limits on government-related entities and banks are less liquid than in the boom years and thus more selective about what projects they will fund.

Aviation is generally seen as a good investment in Dubai. Emirates Airline is the most profitable in the world and still reaching out to new destinations with its modern fleet that includes the most A380 super jumbos owned by any carrier. The Dubai Duty Free is a highly profitable retailer and Dubai International Airport one of the world’s fastest growing aviation hubs.

Capital returns

This is how capital markets are supposed to work, channelling money into profitable sectors and keeping funds away from investments with uncertain returns. You invest in the best and ditch the rest.

Still as time goes on and the recovery continues we can expect to see life being breathed back into at least some of the old Dubai mega-projects though this time on far more rigorous business plans. Real estate, for example, is highly profitable if supply and demand are properly controlled.
arabianmoney, 09 July 2012