Abu Dhabi's Emirates Steel has cut around half the banks who applied to fund its $1.3 billion loan and dropped the margin by around a fifth after the facility was heavily oversubscribed, banking sources said on Tuesday.

The loan, which refinances an existing $1.1 billion facility and raises cash to purchase assets from parent Abu Dhabi's General Holding Corp (Senaat), attracted commitments from lenders worth more than $5 billion, three of the sources said.

This level of demand has allowed the borrower to reduce the margin it will pay on the loan from around 200 basis points over the London interbank offered rate (Libor) to around 160 basis points over the benchmark, the sources said, speaking on condition of anonymity as the information isn't public.

Emirates Steel declined to comment.

While the interest rate earned on the loan by banks will be topped up by fees, the fact Emirates Steel could drop the margin so significantly is a sign of both the quality of the borrower and the substantial liquidity in the Gulf loan market.

The loan has an eight-year lifespan and an amortising structure. This requires both interest and principal to be repaid during the lifetime of the loan, as opposed to a bullet facility where only interest is paid during the tenure.-Reuters