Phoenix from the ashes: Jebel Ali Free Zone’s refinancing came when the borrower faced a crumbling credit profile and strained market liquidity, hamstrung by the eurozone crisis and fragile confidence in Dubai’s economic stability. For successfully safeguarding Dubai’s reputation, Jafza’s Dh4.4bn Islamic loan is IFR’s Emerging EMEA Loan of the Year.
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Under pressure to refinance a Dh7.5bn (US$2bn) Islamic bond by November 2012, Dubai government-owned Jebel Ali Free Zone successfully raised a Dh4.4bn (US$1.2bn) Islamic loan that boosted the credibility of Dubai’s property sector and helped repair the city’s reputation as an economic hub, which had been severely damaged after the 2009 financial crisis.
At the beginning of 2012, there were real concerns that Jafza would be unable to deal with its maturing five-year sukuk, and that it could be forced to seek a government bailout. Jafza had talked with several banks and advisers in 2010–11, but a solution was not found until Citigroup, Dubai Islamic Bank and Standard Chartered were appointed as joint co-ordinators in February 2012.
Highly leveraged – over eight times – and facing a deteriorating credit profile, Jafza faced a challenge to plug its funding gap. The loan formed the centre piece of an integrated package to refinance the Islamic bond, along with a new sukuk, liability management, ratings and a disposal strategy.
More than that, investors were keeping a close eye on the deal that was key not just for the borrower, but also for the future of Dubai itself.
The deal was “life and death for this company”, said Ashu Khullar, co-head of EMEA loan structuring and syndications at Citigroup. “If this deal had blown up, it would have shattered the slowly growing confidence in Dubai and it would have fallen down a cliff again.”
Maximising liquidity
Jafza maximised liquidity from the cash-rich local Islamic banks by denominating the loan in dirhams and structuring it as a Wakala. The deal reflected how pivotal regional support was for Middle Eastern borrowers in 2012, as European banks faced shrinking balance sheets amid the debt crisis.
“Getting the local liquidity to play was the difference between getting a deal done and not getting a deal done,” said Khullar.
The deal was fully subscribed once five initial banks joined in April. They were Abu Dhabi Islamic Bank, Emirates NBD, Mashreq, National Bank of Abu Dhabi and Samba.
A further eight banks – Ajman Bank, Al Hilal Bank, Commercial Bank International, Commercial Bank of Dubai, Mubadala GE Capital, Noor Islamic Bank, Sharjah Islamic Bank and United Arab Bank – joined in general syndication, resulting in the deal being twice oversubscribed.
Jafza’s highly leveraged position and shaky credit profile meant the company had to significantly adjust the payment structure to attract bank appetite, so it included an amortising bank facility with an early paydown mechanism, along with security over property and other assets.
“The loan was priced fairly relative to comparable credits at the time as demonstrated by the market response. It also has appropriate incentive mechanisms built in to benefit the client as it delevers over time,” said Khullar.
The margin ranged between 375bp and 475bp. Banks that signed on to the senior phase committed upwards of Dh400m, while there were two tickets in general syndication with lenders invited to commit Dh185m or Dh92.5m.
The eight-year maturity boosted the credibility of Dubai. Jafza pushed against suggestions for a short-term bridge loan and fought for the flexibility of a longer-term structure that gave the company time to resolve its credit story.
The refinancing, which also included a US$650m sukuk, allowed Jafza to smooth out its maturity profile, widen its sources of financing, improve its leverage and receive a credit rating uplift based on the implemented capital structure.
Jafza signed the deal five months before the maturity deadline on June 14 in an effort that helped wash away doubt that Dubai still teetered on an economic knife edge, as well as marking a pivotal step in the much-needed recovery of one of Dubai’s most beleaguered sectors.
