Dubai expected to raise $500m for metro expansion

Department of Finance to approach banks over next few weeks to request a loan for first funding phase – report

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The government of Dubai is expected to raise funds needed to extend the city’s metro through an initial loan of around $500 million, which will then be followed by loans guaranteed by export credit agencies (ECAs).

According to banking sources familiar with the matter, the Department of Finance will approach banks over the next couple weeks, requesting a loan with a maturity of five years, a Reuters report said. This is half the duration of the loan package which the government had previously discussed with lenders and ECAs, the sources added.

Last year, the government contacted banks about the financing of the metro extension, asking for $2.8 billion in funding, which would have included ECA-backed loans with 18-year tenors and a 10-year commercial loan.

As per the government’s initial request, the commercial portion of the debt package would have had an interest rate margin of no more than 200 basis points over London interbank offered rates, with the banks’ up-front fees capped at 50 bps, commitment fees at 40 bps and underwriting fees at 25 bps.

The five-year loan which the government of Dubai is now expected to propose is likely to have an interest margin of up to 200 bps over Libor, the Reuters report added, citing the sources who requested anonymity because the discussions with the government are private.

One source explained that commercial banks felt more comfortable with a five-, rather than 10-year loan, and would be prepared to lend Dubai more money as time went on. Furthermore, the loan would be an unsecured facility provided directly to the Department of Finance, the sources said.

A spokesperson at the Department of Finance declined to comment.

The loan proceeds will be used to start the 15km long extension of the Dubai Metro to the site of the World Expo, which Dubai will host in 2020.

The extension would be the second major infrastructure project that Dubai aims to finance this year, after having recently secured a $3 billion loan for the expansion of Dubai International Airport and Al Maktoum International Airport.

The government ultimately plans to invest roughly $35 billion in the Al Maktoum International expansion, transforming the facility into Dubai’s primary airport with an annual capacity of 146 million passengers by 2025.

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