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Pricing Dubai risk

From peak to trough

Regional banks display caution

Although Dubai’s most vulnerable companies will find it virtually impossible to get funding in the international markets, its more respected entities will find that the European and US banks are still open for business. Despite all the chaos of the past two months, banks have short memories. Lending conditions will be tougher but the right credit will be able to access funds.

For example Borse Dubai, the owner of Nasdaq Dubai, mulled over the possibility of tapping the bank market to refinance a $2.5 billion loan. If it had done so it would have become the first government-related entity to go to the financial markets since the Dubai World standstill request was first mooted. In the end, it decided to exercise its option to extend the loan for another year.

The challenge for bankers is how to price Dubai risk. "The only thing I can say is that pricing will reflect a lot of premium," says one banker. "Whether a deal would be priced off Dubai’s CDS or similar transactions in other emerging markets – because these events have pushed Dubai back to emerging markets status from emerged – I don’t know."