Dubai: Dubai Duty Free (DDF) said it plans to raise a $1.1 billion (Dh4.04 billion) loan to support further development at Dubai International Airport (DIA).
To coordinate the loan facilities, the airport retailer said in a statement that it has mandated Citibank, London branch, Dubai Islamic Bank, Emirates NBD Capital Limited, and HSBC Bank Middle East Limited and each of their respective affiliates. Abu Dhabi Commercial Bank has pre-committed to the facilities alongside the coordinators as a mandated lead arranger and bookrunner.
Investment Corporation of Dubai-owned DDF said that senior unsecured conventional and Islamic financing facilities will comprise a conventional term loan facility and Islamic facilities.
"The approximate tenure of the facilities will be five to six years," Colm McLoughlin, executive vice-chairman of Dubai Duty Free, told Gulf News.
Asked why DDF is raising funds to support the expansion of Dubai airports, he said: "Dubai Duty Free has always ploughed its money back into both its own retail development plans at DIA and has also supported the projects at the airport as necessary," adding that DDF already funds its own project, including all retail areas at the airport.
Optimising capital
"The purpose of the facilities is to optimise DDF's capital structure in order to support further development at Dubai International Airport," the airport retailer said in a statement.
"DDF is very much part of the airport infrastructure and the proceeds will be used to further develop the infrastructure which in turn will be positive for DDF also," a banker familiar with the transaction told Gulf News.
The company also said that while the syndication was launched on April 5, with banks invited to commit in US dollars and/or UAE dirhams, DDF will be hosting a "management presentation" in Dubai this week.
The news comes as McLoughlin recently told Gulf News that DDF will part-finance the development of a new concourse and terminal, forming a part of the Dh28 billion expansion of Dubai International Airport, the world's fourth largest international passenger hub.
"I am glad to say that Dubai Duty Free and Dubai Airports will mainly finance the development of Concourse 4 at Dubai International Airport," McLoughlin said in a recent interview.
This would be the first major investment by Dubai Duty Free in a large infrastructure project following the construction of its Dh500 million headquarters and central storage at Al Ramool and the new five-star 293-room luxury hotel at the Aviation Club.
"If they are part financing the airport's new concourse and terminal, it's because they are also going to expand their retail space. There has got to be something that DDF is getting in return out of this. They are raising funds to expand their retail operations at Dubai's airports," Abdul Qader Hussain, CEO of Mashreq Capital, told Gulf News.
DDF, which has grown to become the largest single airport retailer in the world, accounting for five per cent of airport shop sales, is expected to add 8,000 square metres to the existing 18,000 square metres of retail space by the end of this year as Concourse 3 comes on board.
"I think it's important to note that the $1.1 billion loan is not just being raised on the back of DDF's ‘good name'. The airport retailer has a vested interest in the successful expansion of the airport. The DDF will be partially financing the development of the new concourse and terminal as part of the larger DIA expansion plans," Raghu Mandagolathur, senior vice president, research at Kuwait Financial Centre, said.
Credit access
According to aviation analyst Saj Ahmad of StrategicAero Research, such a step not only provides credit access to fund growth across the business at DIA, but also "caps the risk" of seeking more expensive and less attractive finance from other sources.
"Given the appeal of Islamic financing and the benefits of lower interest rates, DDF is looking to target passenger traffic through the airport and invest in more products and services to drive revenue forward," he said, adding that given that this initial transaction is a split between conventional and Islamic financing, "we are bound to see more such announcements in the future".
Meanwhile, Dubai was looking to raise at least $500 million by selling debt based on future revenues at DDF, as reported by Reuters last month.
Sales at Dubai Duty Free increased 15.7 per cent to Dh5.31 billion in 2011, while the first quarter 2012 saw sales jump 14 per cent. The airport retailer said recently that the performance signalled a positive year ahead for the company, which is on track to achieve its full-year sales target of Dh6 billion.
