The borrower changed its approach to the deal, originally split between conventional and Islamic tranches, barely a weeek ago, ditching its international arrangers in favour of sole bookrunner Qatar Islamic Bank (QIB).
Qatari Diar had tapped the loan market last year for a Eu637m facility to back its purchase of France’s Cegelec, and has been talking to lenders about a refinancing since at least May this year, ahead of its maturity date at the end of October.
Originally underwritten by Royal Bank of Scotland, SMBC and WestLB, last year’s international mandated lead arrangers had been in the frame to at least lead part of the refinancing up until less than 10 days ago, said one banker close to the syndicate.
Qatari Diar had been in parallel talks with QIB about arranging an Islamic facility, and the dual tranche deal would have been denominated in euros and Qatari riyals across the two pieces.
In a last-minute twist, however, international lenders were told in the last week that they would no longer be involved, with Qatari Diar opting instead to go down the pure Islamic route — making this one of the biggest Shariah-compliant loans to emerge so far this year.
The move irked the borrowers’ existing syndicate, as the terms of the original refinancing were nearly finalised and the deal had been about to launch.
"We weren’t impressed, to say the least," said one banker at a European loan house. "We’d been working on this for a while but then a call came in just the other week saying they’d found a local solution."
But the shift in approach was prompted by complications at the company level, another banker added. It emerged on August 31 that French construction group Vinci was buying Cegelec from Qatari Diar in a share swap that would make the Qatari Diar one of the largest shareholders in Vinci.
The loan refinancing, at roughly Eu700m, had been intended to be split across Qatari Diar and Cegelec. About Eu250m would have sat on Cegelec’s books and the rest with its Qatari parent.
The sale of Cegelec precipitated Qatari Diar’s decision to scrap these plans, and opt for a simpler structure done through the Islamic market.
Five year breakthrough
The borrower has now also been able to obtain a five year facility, which international lenders had been reluctant to provide. International lenders would have split the facility between a five year piece and a two plus one year one, but the latter tranche would have fallen due in 2011 — just when Qatari Diar needs to refinance the $2.365bn loan which backed its acquisition of the Chelsea Barracks in London.
Instead, the facility will now mature in 2014.
Despite the grumblings Qatari Diar’s change in strategy provoked among its international lenders, not all bankers expect the five year maturity to be too difficult to syndicate in the local Middle Eastern market.
"Doing it with the local banks was the only was to get the five year tenor in the end," one official said. "It’s still a tricky maturity but it’s got zero risk-weighting for the local banks."
Others were not as kind to the facility, with one banker saying: "Good luck to them. They will need it."
The pricing on the QIB-led facility, which is structured as a commodity murabaha, is understood to be around the 3% mark. Some of Cegelec’s French banks had originally wanted margins around in the 5% range, which one banker described as "outrageous", while the bookrunners on last year’s deal were pitching at around 4%.
Meanwhile, as the lenders to Qatari Diar’s 2008 acquisition deal digested the rapid shift in the refinancing strategy, one added that "at the end of the day, we’re being paid back, so that aspect is fantastic."
Qatari Diar said on Wednesday, when the deal was announced that it would be earmarked for European investments, although the bulk of this is understood to be related to refinancing the Cegelec debt. A small portion of the proceeds will also be used for general corporate purposes.
Test for Islamic lenders
The new structure of the refinancing will also provide one of the biggest tests of the Islamic market this year.
Five year deals have been absent from the Shariah-compliant market for at least a year, bankers said, and few deals of this size have emerged to test demand among local lenders.
It is also the first time a deal of this profile has been awarded to just one local bank as sole bookrunner and mandated lead arranger, with international lenders usually taking the lead and Islamic banks working on the Shariah-compliant portion.
"It’s a little bit a question of sharing business around," one banker in Qatar said.
"There have been a lot of deals for international banks to line-up for this year, like Qatar Telecom and the sovereign issue, but in this case it was the local banks that could give Qatari Diar what they wanted and plug the gap of what the international banks can’t provide."
