By Michelle Meineke and David French
LONDON/DUBAI, April 4 (Reuters) - Abu Dhabi state fund Aabar
Investments, weakened by a slump at key assets, faces a near
doubling in borrowing costs as it closes in on a refinancing
package to repay a $2 billion loan due in May, banking sources
The fund, the top shareholder in Italian bank UniCredit
and a stakeholder in commodities trader Glencore
, is relying on a guarantee from parent International
Petroleum Investment Co (IPIC) to secure the funds,
the sources told Reuters.
Aabar has borrowed heavily to build up its holdings but has
kept a low profile in recent months, mirroring the stance taken
by the oil-rich emirate as it conducts a strategic review of its
The euro zone debt crisis has dragged on the value of the
fund's assets and IPIC saw its 2011 profit all but wiped out
after it took a $3.4 billion writedown on Aabar's stakes in
UniCredit and automaker Daimler.
Banks have become wary of Aabar's creditworthiness, sending
its borrowing costs up and forcing it to seek support from its
well-regarded parent, the sources said.
Aabar, which did not respond to requests from Reuters for
comment, is close to signing a $2.5 billion loan, three banking
sources told Reuters on Thursday.
The new lending is split between a three-year tranche,
priced at 260 basis points over the London interbank offered
rate, and a five-year portion which pays 290 basis points.
Around 10 lenders have agreed to finance the deal which
could be signed as early as this week, the sources said,
speaking on condition of anonymity as the matter is not public.
The previous three-year loan paid 150 basis points, while
Investment Corp. of Dubai, the emirate's flagship investment
vehicle with stakes in Emirates airline and bank Emirates NBD
, is offering to pay 215 basis points for a new $2
billion five-year loan.
Bankers were unanimous in saying Aabar's loan would have
struggled if IPIC had not played such an active role.
One Gulf-based banker said IPIC, which owns 95.5 percent of
Aabar, told banks it would be beneficial for their continuing
relationship with it to join the Aabar loan.
"As an investment company, Aabar's quite a difficult credit
for people on a standalone basis. However, the IPIC ownership is
a big benefit," said one London-based banker.
IPIC, an Abu Dhabi government investment vehicle, provided a
letter of support which stated it would stand behind the debt if
Aabar was unable to repay, one of the banking sources said.
Lenders gave the offer of support different weighting, the
banker added, because the belief in sovereign-linked guarantees
for Gulf borrowers was heavily damaged by the restructurings at
Dubai investment vehicles like Dubai World - where banks wrongly
thought the government would stand behind these entities' debts.
It is not the first time that IPIC has stepped in to arrange
financing for Aabar.
In 2011, the investment firm took a $1.9 billion loan from
Abu Dhabi Commercial Bank to finance the acquisition
of Aabar's 25-percent stake in Malaysia's RHB Capital from the
Abu Dhabi lender.
IPIC, an energy-focused investment firm which had assets
worth $65.3 billion at end-2011, has stakes in Canada-based Nova
Chemicals, Spain's Cepsa and Austrian oil group OMV
(Editing by David Cowell)