Dubai: Abu Dhabi’s Emirates Steel Industries PJSC will turn to overseas lenders to fund most of a $1 billion (Dh3.67 billion) expansion as local banks curtail lending to the government to comply with new regulations.

The steelmaker, which will seek as much as $700 million in loans in the first quarter, wants to borrow at a spread of 250 basis points, or 2.5 percentage points, above the London Interbank Offered Rate (Libor), Chief Financial Officer Stephen Pope said in a phone interview on Wednesday.

UAE companies are looking beyond domestic bank loans for funds as central bank rules limiting lending to government-related companies at 100 per cent of capital come into effect this month. Annual loan growth reached 3.7 per cent in the year to July.

“We want to diversify our funding sources and attract international banks,” Pope said. “We want to focus more on the export credit agency-backed finance and that will help bring down borrowing costs” since UAE dirham borrowing rates are higher than US dollar rates.

Cutting costs

The company, which appointed BNP Paribas SA to advise on the loan, would cut costs by borrowing more in the US currency than it did in 2010, he said. The three-month Emirates Interbank Offered Rate (Eibor), used to determine loan pricing, was 1.31 per cent on Thursday, the highest in the GCC. The rate’s spread over similar- maturity Libor is 96 basis points.

The steelmaker also borrowed at a margin of 2.5 per cent in August 2010, when it raised $1.1 billion from mainly UAE lenders, including National Bank of Abu Dhabi PJSC, the emirate’s biggest bank. Emirates Steel wants to get as much as 60 per cent of its loan from export credit agencies, state-backed lenders which provide funding for equipment and materials purchased from their countries, Pope said.

Emirates Steel, which makes metals used mainly for construction, plans to raise capacity by 2 million tonnes to 5.5 million tonnes a year.

The steelmaker is controlled by General Holding Corp. Abu Dhabi is turning to production of commodities including steel, aluminium and chemicals to wean its economy off its reliance on crude exports, the source of more than 80 per cent of government revenue. Middle East demand for the metal is set to grow 6 per cent a year from 2014 to 2016, exceeding growth globally and in China, according to estimates of Credit Suisse AG last month.