Citi to advise Dubai’s JAFZA on $2B bond

Citi to advise Dubai’s JAFZA on $2B bond

Citigroup has been tapped to advise Dubai's main industrial free zone operator on its options for meeting a $2 billion Islamic bond maturity this year, including the potential sale of its UK based developer Gazeley, three sources said on Monday.

February 28, 2012 2:38 by Reuters

Jebel Ali Free Zone (JAFZA), which runs an industrial free zone on the outskirts of Dubai, has said it aims to refinance the 7.5 billion dirhams ($2 billion) Islamic bond, or sukuk, maturing in November.

“Citi will for sure look at all options available to address the debt,” one of the sources said, speaking on condition of anonymity. “If they can help sell Gazeley in this market, then it will definitely go toward helping repayment but these markets are not so conducive for asset sales.

“The best option (for JAFZA) will be to roll-over and extend maturities. That is where banks with big balance sheets come into play.”

Spokesmen for both JAFZA and Citigroup in Dubai declined to comment.

Gazeley, as well as JAFZA, are part of state-owned conglomerate Dubai World Group umbrella focusing on technology, logistics and industrial parks. Dubai World bought Gazeley from Wal-Mart Stores in 2008 for an estimated 300 million to 400 million pounds ($459 million-$611 million).

Helped by an economic revival in trade and tourism and its safe-haven status amid the Arab Spring civil uprisings Dubai is recovering from the depths of its debt crisis.

The Gulf emirate stunned global markets in 2009 when it sought a standstill on $26 billion in debts related to Dubai World. It reached an agreement with banks to extend debt maturities by promising repayment mostly through asset sales.

Yet the emirate has been reluctant to sell assets citing weak market conditions. A likely sale of Gazeley would be the among first major asset disposals the emirate has undertaken to meet debt maturities following the financial crisis.

Details on refinancing the JAFZA bond are expected to be finalized by the end of April. The proposed structure involves an approximately $300 million cash payment, a new Islamic bond and a club loan involving up to seven banks, two banking sources said.

“There will be some cash to be paid by JAFZA … depending on the pricing of the other two,” one of the bankers said.

Dubai Islamic Bank, the emirate’s third-largest bank by market value, holds more than $500 million of the current bond.

Sources told Reuters in January that a sale of Gazeley was being considered.

JAFZA had shortlisted seven banks including Citigroup, Banc of America, Morgan Stanley, HSBC, and Standard Chartered as potential advisors for Gazeley, the sources said.

JAFZA Chairman Hisham Abdullah al-Shirawi said in December that he does not rule out asset sales to help raise funds to pay off debt but said the company does not need to seek government support.

The JAFZA bond, along with DIFC Investment’s $1.25 billion Islamic bond which matures in June, are in the spotlight as investors weigh Dubai’s refinancing risks in 2012. (By Dinesh Nair and Mirna Sleiman) *image from arabiansupplychain.com