Liquidity pressure hikes Emal’s loan cost 40%

Emirates Global Aluminium (Emal) a joint venture between Abu Dhabi and Dubai, is said to be paying almost 40 percent more for a loan compared with last year as liquidity in the Gulf tightens after the plunge in oil prices.

The state-controlled company will pay 200 basis points, or 2 percentage points, above the London Interbank Offered Rate on a $4.9 billion, seven-year conventional loan and an Islamic facility, according to three people with knowledge of the plan, who asked not to be identified because the information isn’t public. That compares with a spread of 145 basis points that subsidiary Dubai Aluminium paid on a similar maturity facility it raised in December 2014, according to data compiled by Bloomberg.

A spokeswoman for Emirates Global Aluminium didn’t respond to phone calls and an e-mail seeking comment.

Companies in the six-nation Gulf Cooperation Council, home to about 30 percent of the world’s proven crude reserves, are beginning to face higher borrowing costs after oil’s 65 percent plunge since June last year led to a slowdown in bank deposit growth. The Emirates Interbank Offered Rate, a local benchmark used to price some loans, climbed the most this year since at least 2006 to 1.04729 percent, the highest since April 2013.

Emirates Global Aluminium said Nov. 23 it started marketing the loan after appointing seven lenders including BNP Paribas SA, Citigroup Inc. and Natixis SA as bookrunners. The money will be used to replace existing loans raised by its subsidiary Emirates Aluminium in 2007 and 2012, and will be the “first of a series of transactions being implemented to optimize EGA’s capital structure,” Samer Jumean, the head of financing and capital markets, said in a statement that day.

Emirates Global Aluminium is owned equally by Abu Dhabi’s Mubadala Development Company PJSC and Investment Corporation of Dubai, and is among the world’s five largest primary aluminum producers, according to its website. The sheikhdoms started the joint venture in 2013.

Aluminum has declined 17 percent this year on the London Metal Exchange, heading for the biggest annual decline since 2011.-Bloomberg