Dubai’s ETA Star, a holding company for businesses including real estate and shipping, said on Tuesday it was seeking a $300 million loan to fund expansion and may sell Islamic bonds next year.
The company is in talks with HSBC Holdings, BNP Paribas and Emirates Bank International (EBI) about arranging the five-year loan, ETA Star executive director for corporate affairs and projects V.P. Nagarajan said.
The loan would also be used to refinance existing debt, he said.
ETA Star said in April it planned to sell $300 million worth of Islamic bonds, or sukuk, in May to fund expansion of its manufacturing and shipping businesses.
“It is easier to go for conventional borrowing at the moment,” Nagarajan told Reuters on Tuesday.
Gulf Arab sales of Islamic bonds have dried up since July as global credit fears sparked by concerns over the US subprime mortgage market prompted some companies to postpone bond sales.
ETA would decide by the end of the year whether to raise money through an Islamic bond sale, Nagarajan said. ETA plans to borrow up to $2 billion by 2010 to fund expansion, he told Reuters in April.
ETA had not yet chosen banks for a bond sale, Nagarajan said. Standard & Poor’s Ratings Services (S&P) assigned the ETA Group a BBB- long-term corporate credit rating in June.
“We have a rating from Standard & Poor’s and there is a possibility of selling Islamic or convertible bonds early next year,” he said.
“Some of it will be refinancing to reduce short-term debt to long-term debt and we will look to use some for expansion.”
Islamic bonds are typically backed by physical assets that pay a dividend or rent to bondholders rather than interest, which Islam equates with usury.
Demand for the bonds has surged as more Muslims seek investments that comply with their beliefs, and more Western investors seek exposure to booming Gulf economies.
Moody’s Investors Service in August said it expected Gulf sales of corporate sukuk this year to exceed last year’s record of $9 billion. Companies had sold $6.3 billion by August.
ETA is a joint venture between Dubai’s Al-Ghurair Investments and Indian businessmen BS Abdul Rahman and Syed Salahuddin, he said.
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