A number of Abu Dhabi government-related entities (GREs) are said to be exploring finance options from international lenders as sources of funding at home become more expensive.
Corporate borrowing costs are increasing as deposits in banks dwindle and interest rates rise amid the steepest drop in oil since 2008.
The state investment firms Aabar and Mubadala, as well as the telecoms operator Etisalat, are said to each be seeking between US$2 billion and $2.5bn in loans, people familiar with the situation told The National yesterday.
No one at Aabar or Etisalat was immediately available to comment, but a Mubadala spokesman said it was not in the market for a loan at the moment.
On Monday, Reuters reported, citing sources it did not name, that Aabar was seeking $2.5bn to refinance existing debt. According to one of the sources The National spoke to yesterday, Aabar has $1.5bn of debt that matures in April. It was not immediately clear what would be done with the remaining $1bn, although the company, as well as other GREs, might be keen to get cash as cheaply as possible at a time when rates on debt are set to rise even more, according to analysts.
The loans would most likely be arranged through either a syndicated facility – in which a group of financial institutions pool together to fund a client – or a so-called club loan where the borrower arranges the deal with lenders and keeps the details under wraps, according to sources.
“You go to the cheapest source of funding and if you, as a large company with a good track record, can raise overseas, you will,” said Sanyalak Manibhandu, the head of research at Abu Dhabi’s NBAD Securities.
“Government companies are probably finding syndicated loans here more expensive,” he added. “Everyone is finding it more expensive to borrow here.”
If a rising number of GREs tap international markets, that could affect local banks that in recent years have been focusing on fee-generating businesses such as syndicated loans to beef up profits after record-low interest rates squeezed margins on loans. While rates are now going up as the availability of cash in the banking system tightens, banks are, however, becoming more cautious when doling out credit.
Deposits from government entities were down 16.6 per cent year-on-year in December at Dh159bn, according to the latest statistics from the UAE Central Bank.
Syndicated loans last year grew to their highest levels in the Arabian Gulf since 2008 as demand outstrips appetite for traditional bank loans, bonds or sukuk, making these kinds of deals better value for borrowers.
About $65bn of syndicated loan deals were signed last year, according to Bloomberg.
That figure does not include a $4.9bn syndicated loan for Emirates Global Aluminium announced in November – in what will be the country’s largest such arrangement since 2008.
The company will reportedly pay about 40 per cent more than it did for a similar facility a year earlier.
The US Federal Reserve’s decision to increase interest rates in December has contributed to higher borrowing costs in the UAE as the country’s peg to the US dollar obliges it to track American monetary policy.
The benchmark three-month Emirates interbank offered rate, or Eibor, has increased to a two-year high of about 1.05 per cent this month compared with 0.82 per cent in September.
Yields on Abu Dhabi sovereign debt maturing in 2019 have also shot up, to 1.9 per cent this month, from 1.5 per cent in September.
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