International banks assess Dubai loan exposure

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International banks are assessing the implications of Dubai's debt standstill, which affects a USD5.5 billion syndicated loan for Dubai World and a 4.4 billion dirham (USD1.20 billion) loan for its subsidiary Nakheel, according to Thomson Reuters LPC data.

Lenders on the USD6.5 billion of loans are seeking more information after the Dubai government's request for a debt standstill on Wednesday as it restructures state-run Dubai World group and its debt.

"We are in the dark, we expect more clarity in a couple of days," a banker close to the situation said.

Exposure to Dubai World could be as high as USD12 billion in syndicated and bilateral loans, including existing loans for Nakheel, developer of Dubai's palm-shaped islands and Istithmar, the investment arm of the Dubai government, banking sources told Thomson Reuters LPC.

International banks are seeking to clarify their position as they formulate their response to the standstill request and are assessing the implications for lending to Dubai and the Gulf.

"This is very serious and will have implications across the region," a senior banker said.

Dubai World signed the USD5.5 billion term loan in June 2008 which included a USD2.1 billion, two-year term loan, a USD1.95 billion, three-year term loan, a USD1 billion, five-year term loan, and a USD450 million, three-year revolving credit facility.

Bank of Tokyo-Mitsubishi UFJ, Calyon, Emirates Bank, HSBC, ING, Lloyds TSB, MashreqBank, Royal Bank of Scotland and Sumitomo Mitsui Banking Corp led the deal. Goldman Sachs pre-committed and joined the facility as a mandated lead arranger and another 49 banks joined the deal as participants.

Some of those banks saw volatility in their share prices on Thursday following the Dubai government's announcement.

Assessing individual lenders' exposure to Dubai World is difficult as loans trade in the secondary market after signing. Lenders can either reduce or increase their exposure and new lenders can join the deal.

Deutsche Bank, for example, participated in Dubai World's loan, but a source told Reuters on Thursday that Deutsche Bank has no exposure to the company.

Nakheel's loan, which matures in Jan. 2011 and included conventional and Islamic tranches, was provided by underwriters and bookrunners Emirates Bank International, Mashreqbank, Noor Islamic Bank and Samba Financial Group.

Dubai World has USD59 billion of liabilities, Nakheel said in August, which comprises the bulk of Dubai's total debt of USD80 billion.