Dubai Said to Agree $3 Billion Loan to Fund Airport Expansion

(Bloomberg) -- Dubai agreed a $3 billion loan with banks to fund the expansion of Dubai World Central airport and logistics hub as it prepares to host the World Expo in 2020, people familiar with the matter said.

The emirate will pay interest of 200 basis points, or 2 percentage points, above the London Interbank Offered Rate on the seven-year facility, said the people, asking not to be identified because the talks are private. It will also pay a one-time fee of 85 basis points on the loan value, they said. HSBC Holdings Plc is advising the government on the talks and an agreement is expected to be signed within weeks, the people said.

The loan, which includes a $2 billion conventional tranche and a 3.67 billion dirham ($1 billion) Islamic portion, is being raised by a special-purpose company to pay for the expansion of DWC -- home to the city’s new Al Maktoum International Airport -- and associated facilities in the south of the emirate, people aware of the matter said in December. The government will pay a margin of 200 basis points over the Emirates Interbank Offered Rate on the Islamic facility, people said.

Banks had been seeking higher pricing on the loan and wanted the government to pay a margin of as much as 220 basis points over the benchmark rate, compared with its proposal of 180 basis points plus about 14 basis points in fees, people said in December.

HSBC declined to comment, while Dubai’s department of finance didn’t immediately respond.

Dubai International Airport is already the world’s busiest by international passengers as the city developed into a hub for trans-continental traffic between America and Europe with Asia. The emirate is developing Al Maktoum close to the Expo 2020 site with an annual capacity of about 220 million passengers and plans to move flagship carrier Emirates by 2025. The special-purpose company will be paid by Dubai’s department of finance based on a formula linked to passenger numbers at the city’s two airports, the people said.

To contact the reporters on this story: Archana Narayanan in Dubai at anarayanan16@bloomberg.net, Arif Sharif in Dubai at asharif2@bloomberg.net. To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Tim Barwell at tbarwell@bloomberg.net, Stefania Bianchi