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(Bloomberg) — When one of the largest private school operators on the planet was looking to pull off a deal involving buyout titans Brookfield Asset Management Ltd. and CVC Capital Partners, it wasn’t the usual coterie of Wall Street banks that stepped in to help. 

Instead, it was four Emirati banks that financed a 10-year $3.25 billion loan to GEMS Education. The loan was part of a roughly $5.2 billion deal that involved a Brookfield-led consortium injecting almost $2 billion of equity to acquire a stake in the education giant, and allowed CVC to largely exit the company.

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That a cadre of regional banks little known outside of the Gulf region, including Abu Dhabi Commercial Bank PJSC and Dubai Islamic Bank PJSC, played such a crucial role in the deal shows their growing financial heft and the importance of local ties in Middle Eastern dealmaking. The lenders — flush with deposits as oil revenue buoys the region — are chasing ever-bigger deals, often offering terms that the likes of Citigroup Inc. and JPMorgan Chase & Co. can’t compete with.

“Local companies will mainly work with local banks because they know each other — it’s easier for banks to oversee them and to underwrite risks” said Anton Lopatin, a senior director at Fitch Ratings in Dubai, adding that “they can usually provide better pricing.”

This account is based on conversations with more than half a dozen people familiar with the matter, who asked not to be named discussing non-public information. Representatives for GEMS and Brookfield declined to comment while a spokesperson for CVC did not respond to a request for comment.

As part of the deal, the lender group that provided the $3.25 billion loan to GEMS, which also includes First Abu Dhabi Bank PJSC and Mashreqbank PSC, refinanced about $1.9 billion of debt that had saddled the company with higher borrowing costs.

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The new loan reduced borrowing costs to about 350 basis points over the benchmark, the people familiar with the matter said — a much lower rate than banking giants like JPMorgan or Citigroup would be able to offer, and also undercutting typical spreads on private credit deals. 

The new debt also came with a $100 million revolving credit facility to give GEMS more breathing room to conduct its day-to-day business, the people said.

Representatives for First Abu Dhabi Bank, Mashreqbank and Dubai Islamic Bank declined to comment. ADCB declined to comment on the GEMS transaction, but said it is a “leader in regional capital markets and syndicated loan advisory.”

Coffers Filled

Lenders across the Middle East have seen their coffers filled amid an energy boom, giving them the firepower to chase deals that are typically the domain of titans like Goldman Sachs Group Inc. and Bank of America Corp. The wealth in the region has also meant that many companies and state-backed firms have had little need to borrow, leaving the average loan-to-deposit ratio for UAE banks at its lowest in a decade, according to data compiled by Bloomberg Intelligence.

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“UAE banks have ample liquidity on their balance sheets,” said Puneet Tuli, a credit analyst focusing on financial institutions at S&P Global Ratings. Over the past few years, these banks have also “developed their capacity to structure and execute deals,” he said.

That put the local lenders in a good position to be involved in Brookfield’s GEMS deal, which ended a long-running and complicated process.

When CVC first took a stake in GEMS, the two companies structured the deal in such a way that the buyout firm was entitled to additional shares in five years if the company didn’t hit certain targets, potentially making them the majority holder. 

As that deadline neared, neither GEMS nor CVC wanted that scenario to play out, and they got to work on extricating CVC. Refinancing some of GEMS’ existing debt was a crucial step, because some of it was tied to CVC’s stake.

The Brookfield-led consortium liked the fact that GEMS’ expansion —  from a single school into one of the world’s largest private education providers — has mirrored Dubai’s own growth. Parents in the financial hub, which has a large expat population, spend large amounts on private education — sometimes upwards of $20,000 a year.

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While GEMS was an unusually large inbound private equity deal in the region, local banks have also been flexing their lending prowess over Wall Street in the initial public offerings market. Emirates NBD Bank PJSC, for example, lent $1.5 billion to Emirates Central Cooling Systems Corp. to fund pre-IPO dividends ahead of its listing in 2022.

As well as using the four Emirati banks, GEMS also looked locally for advisers. It leaned on deNovo Partners — a Dubai-based boutique founded by former Morgan Stanley banker May Nasrallah — along with Goldman Sachs Group Inc.

—With assistance from Dinesh Nair.

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