Sentiment towards Dubai is shifting. Lenders are opening their books to the emirate again after three years of painful restructurings. On one level it’s unsurprising: Dubai certainly has plenty to offer lenders. But their reasons for returning to deals there hint at remarkably short memories among loan bankers. And that is a surprise, given that they typically pride themselves on taking a longer view than their DCM or ECM colleagues.
Words like “Dubai” and “property” no longer appear to set the same alarm bells ringing as they might have done a year ago. Atlantis Palm Resort, for instance, has mandated six banks to arrange an $850m refinancing facility. Abu Dhabi Commercial Bank, Barclays, Commercial Bank of Dubai, HSBC, National Bank of Abu Dhabi and Union National Bank are at the top of the deal sheet and decent support is widely expected from both regional and international lenders.
The deal comes two weeks after state investment firm Dubai Group announced that it was close to restructuring $6bn of debt after more than two years of tense negotiations. One senior loans banker spoke for many others when he told EuroWeek that the restructuring had been going on for so long that market had accepted and absorbed it — and that it was barely seen as indicative of the wider health of Dubai.
It is difficult to comprehend how a $6bn restructuring — which has already caused Commercial International Bank Egypt, Commerzbank, RBS and Standard Bank to take 81.5% haircuts on $330m of loans that Dubai Group owed them — could be considered such a non-issue, particularly when potentially looking to syndicate new loans to banks that have already been burned by the process.
But some loans bankers reckon they have an ace up their sleeve — Dubai’s improving CDS levels are being touted as one of the best marks of the emirate’s improving health. Dubai’s five year CDS was 287 last Thursday, a 97 point drop from the same time in 2011, and well down from the two year high of 511 seen in October 2011, according to Markit, the financial information services company.
This is an impressive tightening. But CDS sometimes does not tell the whole story. Cyprus CDS was hovering at around 650 — its lowest level in 18 months — just two and a half weeks before the country’s bail-out on March 25, according to Markit. This week it’s at around 1035.
Banks should avoid the temptation to stick their heads in the Dubai sand and wish away all the previous problems in the emirate. But if it goes well and performs throughout its lifetime, the Atlantis Palm Resort deal could be a much more meaningful indicator of a renaissance than any tightening in CDS.